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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The interest rate on a savings account is money the bank is *paying to you* for you having money in the account, because they use that money to give loans to other people or make investments.
In your example, p.a. means “per annum” or “per year”. That means that if you put $100 in the account and it earns 4.25% *per year*, then you would expect to have $104.25 in the account after your money sat there for a year. It is usually a little more complicated than that, though, because they usually pay you your interest each month (4.25% is for *one year*, but if it is paid monthly then it is 4.25 / 12), which means you will have a few cents more than $104.25 in your account at the end of the year if you just put that $100 in and don’t touch it.
“All rates are variable” means the rate can change – even though the rate *right now* is 4.25%, tomorrow it might be 4.27%, or 4.20% or 3.5%.
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