eli5: do banks pay you for saving your money with them or do you pay them to save your money?

Question

I never learned how it works

In: 3

Answer 1

The way banks make money at the retail level, and how they’re able to pay you for putting money into a savings account is through the net interest margin: when banks lend money to other people, they charge a higher interest rate such as 3% (the bank receives 3% from borrower). For people that put their money in a savings account, they give interest at a lower rate such as 1%. So, their net interest margin is 3% – 1% = 2%.

In short, they take a portion of money they gain from borrowers that they lend to, and give it to people that give the bank money via depositing into a savings account.