Suppose the following rates are averages for banks in your area: interest checking accounts pay 1%,savings accounts pay 2%,and one-year certificates of deposit pay 3%.All accounts are federally insured by the FDIC.The difference in rates can be explained mainly by

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Liquidity premiums are the extra interest paid to compensate for the loss of liquidity associated with longer-term investments. In this case, checking accounts are the most liquid, followed by savings accounts, and then one-year certificates of deposit. Therefore, checking accounts pay the lowest interest rate, savings accounts pay a higher interest rate, and one-year certificates of deposit pay the highest interest rate.

Suppose the Following Rates Are Averages for Banks in Your