Question

comment about the following statement and question.
“The rate of interest represents the compensation to the lender for the administrative cost incurred, such as rent, salaries, air conditioner, and other costs. Also a compensation for the risk of not recovering the cash flow that was lent, and for an additional profit.”
Why do you think in the Puerto Rico Bank and Financial sector, the interest rate that is paid to the clients in the savings accounts is so low? Few years ago the interest rates were much higher.

Answer 1

The above statement is true in many aspects such as the interest paid to the lender act as compension for the administration of its business and also act as the main reason of profit for its business. Secondly high rate of interest charged by the lender reflects as a reward for higher risk associated with the recovery of the lent amount. Overall it is the main aspect of the business of the lender to get the interest to be paid on the loan granted by him.

The interest paid to the clients on saving account is much lower than earlier when the rates used to higher as the economy now is so developed that the money circulation is good, which leads to money overflow in the market which they used to deposit in banks as they dont need the money at that time for the normal living, therefore as the deposits increased the rate of interests on the deposits used to get reduced.