Why are banks no longer permitted to pay interest only on the Investable Balance?

The correct answer highlights the shift in regulations to promote transparency and fairness in financial transactions, particularly in the realm of consumer banking. Under the Truth in Savings Act, the aim is to ensure that consumers are provided with clear and accurate information about interest rates and account terms. By prohibiting banks from paying interest solely on the Investable Balance, regulations help to prevent confusing practices that could mislead consumers about how their interest is calculated.

This change reflects broader efforts to create a level playing field in banking, allowing account holders to make informed decisions based on a straightforward understanding of how their funds are managed and how interest is accrued. The focus is on safeguarding consumer interests, ensuring they have access to information that allows for fair comparison and understanding of account terms across different financial institutions.

Other potential reasons mentioned, such as incentivizing account holder behavior, preventing unintentional overdrafts, and ensuring higher returns for investors, while important in the context of banking practices, do not specifically address the core goal of enhancing transparency and fairness in the way interest is calculated and communicated to consumers.