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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Interest is money earned (and/or owed) based on a given amount.
Lets keep things simple at $100, and something like 2% interest.
If the interest is calculated over a year, then when you go to it next year, the account would have $102 in it.
This works for debts, as well, but it’s figured out the same way – if you owe a debt collector $100, and they operate on 2% interest yearly, then if you keep not paying them, you’ll owe them $102 after a year.
We can scale that up and around with different numbers – for $50,000 and 4.25% yearly interest, then after a year, the account would be valued at $52,125. The $2125 is the 4.25% yearly interest that you earned just for keeping your money in that bank.
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It’s not uncommon for banks to charge an account maintenance fee – this varies by bank, and you’ll need to ask your bank about their policies about maintenance fees.
For a lot of them, the maintenance fee is only for accounts that don’t have much money in them (less than $1000-1500), or don’t have much activity (you only use it once or twice a year), and it’ll usually amount to about a $15 monthly fee to keep the account open. As said, for specifics on it, you’d need to talk to your bank specifically, because they might have maintenance fees for *all* accounts, or they might have a maintenance-fee-free account type that you can open instead.
The maintenance fees here are not usually part of or based on the amount of money in the account (as interest would be) – if your account only has $100 in it, they’re likely going to charge you the same $15-ish maintenance fee as if you had $500 in it.
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