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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You give all your money to the bank. In turn, the bank takes your money and lends it to other people. The bank charges them interest and fees for the privilege of loaning that money. Let’s say you give the bank $10,000. They loan it out to someone and make $1000 in interest and fees. They’ll keep part of that money and give the rest to you as compensation for letting them lend out your money to others.
So basically, you are loaning the back your money and you’re charging them interest for that. In turn, the bank loans your money out to others and tries to make a profit on it.
If your bank offers you a 4.25% annual interest rate, and you give them $10,000 then you should expect to have $10,425 in your account if you leave it in there for a year.
When you put money in a savings account, the bank will pay you some money called interest. It is measured as a percentage of however much money you have in the account. The “p.a.” after the percentage means that the percentage is over a year. So if the bank is offering 4.5% p.a. interest, and you put $100,000 in a savings account, then in a year’s time you will have an extra 4.5% ($4500) in your account.
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