Explanation:
Statement B is TRUE. Transaction deposits (such as checking and demand deposit accounts) are generally the most profitable source of funds for depository institutions. Although they carry higher operating and processing costs, they have very low or zero interest costs, which typically outweighs the processing expenses.
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20.13.1. At commercial banks (as well as savings institutions and credit unions), deposits are the key liability. According to Rose and Hudgins, two important questions about the bank’s management of deposits are: have all deposits been raised at the lowest possible cost? and, are there enough deposits to cover all loans and projects that the firm wishes to pursue? Consumers, however, can easily become confused simply because there is a dizzying array of deposit products! A high-level difference is between transaction and non-transaction deposit types. In regard to transaction versus non-transaction deposit types, which of the following statements is TRUE?
A
The least popular transaction deposit is the certificate of deposit (CD)
B
Transaction deposits are generally more profitable than non-transaction deposits
C
Core deposits exclude transaction accounts and include all non-transaction accounts that qualify as Tier 1 regulatory capital
D
Compared to non-transaction deposits, transaction deposits are generally less costly to process and provide a more stable funding base
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