What does a company gain by offering a consumer a CD account or a mutual fund?

Question

These types of accounts (CDs and Mutual funds) are said to have higher interest rates that the account holder can benefit from than a normal savings account , but what's in it for the company offering the CD or the Mutual fund ?

Answer 1

The institution that issues a CD lends out the money at higher rates than they pay on the CD.  Mutual funds make money on fees they charge investors in the fund.

Answer 2

With a CD (certificate of deposit), financial institutions offer higher rates as you are contracting to leave the funds with them for a specific period of time.  Deposits are a liability to banks, which they use to fund assets, or loans.  Loans will have higher interest rates, and the banks make their money on the rate spreads.  They like to know the money will be there for longer periods of time, therefore the higher interest rates.

With savings accounts, you can draw the funds on demand, so banks have a lesser liquidity position with them, therefore they pay less.

With Mutual Funds, you don't have interest rates that are paid.  You have a yield that you can earn, provided the value of the fund increases.  However, these are subject to losses, as they can decrease in value.

Do not confuse the two, they are very different.

Answer 3

commissions and fund to invest.