How does a tiered rate account determine the interest rate paid?

A tiered rate account determines the interest rate paid based on the account balance maintained by the customer. In this type of account, different levels or "tiers" of interest rates apply to different segments of the account balance. For instance, a financial institution may offer a lower interest rate for balances up to a certain amount and higher interest rates for balances that exceed that threshold. This encourages customers to maintain higher balances in order to earn a better return on their savings.

Using tiered rates is a strategy employed by banks and credit unions to promote higher deposits, rewarding customers with better rates as their account balance grows. This structure incentivizes savings, as individuals can maximize their interest earnings by keeping more funds deposited.

The other choices are not relevant to how tiered rate accounts function. For example, an account's interest rate is not determined by the date it was opened, nor is it influenced by customer loyalty or the frequency of monthly deposits made into the account. Instead, it is strictly based on the amount of money held in the account at any given time.