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 offer loans on the money.

So if a bank offers you 5% on your $100 stored there, you earn $5 in a year.

If the bank can loan the money to someone else at 7%, they get $7, give you the $5, and have $2 profit.