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 get money to lend from deposits, but also from the fed. The amount they’re allowed to borrow is based on the amount of deposits they have. They then lend that money out at a significantly higher rate than they pay you.