Question

quiz
question 4 of 6
why do financial institutions offer you higher interest rates for
certificates of deposit (cds)?
select a response.
○ they are paying you back for fees and interest that you have prepaid.
○ the interest you earn is only borrowed and must be repaid at the end of the
term.
○ you must keep your money in the account for a set amount of time.
○ youll be required to invest your interest funds with the same institution.

Explanation:

Certificates of Deposit (CDs) require the depositor to keep the money in the account for a specified term (e.g., 6 months, 1 year, 5 years). Financial institutions offer higher interest rates on CDs because in exchange for the depositor agreeing to leave the money untouched for that set period, the institution can use that funds more securely for its operations or lending, and thus compensates the depositor with a higher rate compared to regular savings accounts where funds can be withdrawn more freely. The other options are incorrect: there's no prepayment of fees/interest for CDs, the interest earned is not "borrowed" to be repaid, and CDs don't require reinvesting interest funds with the same institution.

Answer:

C. You must keep your money in the account for a set amount of time.