please ACTUALLY explain this like im 5 i genuinely cannot grasp this concept whatsoever. i’m opening a savings account and it says;
“The interest rate depends on your account balance. All rates are variable. 4.25% p.a. on balances less than $50,000. 4.25% p.a. on balances between $50,000 – $249,999.”
am i paying for my own savings account???? what??????? i am so confused i feel like im going crazy
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tl;dr: The interest is money the *bank* is giving *to you*, as an incentive to keep your money with them.
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The bank wants you to keep your money with them.
To incentivise you, they pay you a small amount every month. This is interest. If your interest rate is 1% a year, then if you have $2000 at the start of the period, you have $2020 at the end of the period: you have been paid money by the bank!
Why would they give you money? The reason is that when people put their money in a bank, the bank doesn’t just have it sat in a pile. They take your money and *spend it* – specifically, they invest it in stuff that then generates more money. So the interest they give you is a small part of what they earn by investing your money behind the scenes.
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