[Related to the Apply the Concept on page 489] In a
newspaper column, author Delia Ephron described a conversation with a friend who had a large balance on her
credit card with an interest rate of 18 percent per year. The
friend was worried about paying off the debt. Ephron was
earning only 0.4 percent interest on her bank certificate
of deposit (CD). She considered withdrawing the money
from her CD and loaning it to her friend so her friend
could pay off her credit card balance: “So I was thinking
that all of us earning 0.4 percent could instead loan money
to our friends at 0.5 percent…. My friend would get out of
debt [and] I would earn $5 a month instead of $4.” Why
don’t more people use their savings to make loans rather
than keep the funds in bank accounts that earn very low
rates of interest?
Source: Delia Ephron, “Banks Taketh, but Don’t Giveth,” New York
Times, January 27, 2012.