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

Ever notice that the costs of borrowing money (credit card interest rates, mortgage rates, loan rates) are always higher than the interest the bank is willing to give you on your savings account?

Banks borrow money from you, invest some, loan some to others at higher rates, and pocket the difference. Your money provides them with the funds to do those things, so you get a piece of the action.