The interest rate paid by the commercial banks to depositors is lower than the rate charged from the borrowers. This difference between these two types of interest rates, called?

1. Bank Rate.
2. Spread.
3. Reserve.
4. Deposits.

Option 1 -> Bank Rate is the rate at which the central bank lends to commercial banks, not the difference between deposit and lending rates.

Option 2 -> Spread is the difference between the interest rate paid on deposits and the rate charged on loans.

Option 3 -> Reserve refers to the portion of deposits banks must maintain with the central bank.

Option 4 -> Deposits are funds placed by customers in the bank, not an interest rate difference.

Hence, Spread -> The spread, also known as interest rate spread or net interest margin, is the difference between the interest rate a bank charges borrowers and the interest rate it pays to depositors. This spread represents the bank's primary source of profit from its lending and deposit-taking activities. For example, if a bank pays 3% on deposits and charges 8% on loans, the spread is 5%. -> correct