Eli5 why do banks give interest on money that I am keeping there?

Question

It just seems like a semi necessary thing to have to use a bank, why do they pay me a % to keep money there?

In: 1333

Answer 1

Banks make money by using the money that others deposit with the bank (it’s more complicated than that, but that’s the ELI5 gist). If no one puts their money in a bank, the bank has no money to use to make itself money.

Let’s say there are 2 banks in town. One pays no interest to depositors, while the other pays 5% interest. Which one are you depositing your money with? That’s the only reason banks pay interest – to entice you and others to deposit their money with them.