Question

Reasons why a zero interest account is not beneficial

Answer 1

The reasons are as follows:

1) Lack of regular income : a zero interest account does not pays any interesy on the balance held in such account which leads to lack of a regular income.

2) Does not account for inflation : a zero interest account does not pays any amount on account of prevailing inflation in an economy. This means that this account creates an inflation burden on the deposits made by the investor.

3) Does not considers time value of money : These zero interest accounts does not considers any time value for money which means that a dollar deposited today will return the same dollar at any point of time in future.

4) Lacks compounding effect: Since these accounts does not pays any intetest, it lacks a benefit if compounding.

5) No wealth creation : these accounts does not help in wealth creation for a depositor beacuse it will return on the amount of initial deposit only.