I have just started using a debit card but i want an option for a savings account . Most saving accounts come with 0.5-1% interest rate so what exactly does that mean?
Also would like to know if this is religiously acceptable (islam) (only if anyone has that knowledge please, its alright if you dont, you can avoid mentioning it)
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A savings account, is basically a way that you agree to lend the bank (or other lending institution) money. Its a weird thing to think about but its important to note that when you give someone your money to store, they are borrowing it.
So banks basically work by borrowing peoples money on a short term basis and lending it out on a long term basis. If you think this seems dangerous, it is, that is why in places like the US we have the FDIC (but that is another ELI5).
A bank is borrowing your money. Why would you want to give your money to one bank over another? Well, because the bank promises to give you some money back!
Bank: Hey, lend me 30 dollars?
You: Why would I want to give you 30 dollars?
Bank: Because I will give some extra money to you in exchange for you helping me out.
You: How much?
Bank: I will give you 1 percent interest.
That 1 percent interest is mathematical expression to help you figure out how much you will get back.
In super easy math (which isn’t correct), 1% interest means 1% per period (maybe a year or something). So if you lend me $100 dollars for a year, then I will give you back $101 at the end of the year.
Now that math is super easy and it doesn’t work like that, you actually get more. 1% is annualized interest that is compounded over some period. that math gets more complicated, and there are calculators on line to help with it. But that really means you will get MORE than $1 on $100 at the end of the year. What really happens is that banks give you interest “along the way.” So at multiple times per year they will give you interest on your holdings. Not the whole 1% but a fraction of it. As a result if you deposit $100 dollars on 1/1 then by maybe 1/6 you will have something like $100.40 cents (again this is just made up math, there are calculators to figure out the real amount). BUT then on the second half of the year they apply that calculation again, except instead of starting with $100 dollars they start with $100.40. And whammo, you get something closer to $101.56 (again, made up the numbers).
SO now you next question should be “what bank should I choose?” Well, in the US, you should chose the bank with the higher interest rate as long as you are depositing less than $250,000 which is the max insurance rate for the FDIC.
Happy to clarify further if there are more questions.
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