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
They use the money for their own purposes, investments etc. Of course what this means is that at any given time, if all their customers rushed to the bank to withdraw their money they wouldn’t actually have all that money on hand.
Thus, they try to encourage people to keep their money in with incentives like interest. Also to a lesser degree it’s meant to somewhat compensate for inflation, but it’s not a primary reason because if it was then interest would follow inflation rates automatically.
When you deposit money, technically you’re giving them a loan. They have to pay interest to use your capital.
They want you to deposit your money with their bank because they get to put your money into a big fund and invest it. They make a lot of their money by gambling with house chips. There was a point in our history where banks were viewed the way we look at crypto exchanges, where you might lose everything because a banker decides to close shop and skip town with everyone’s money. Now we have federal deposit insurance so there is some guarantee that your money is safe but the banks still have to convince people to deposit with their bank over the other alternatives. There are other incentives besides savings interest for people who have more money to invest
They aren’t keeping your money there. They are lending it/investing it and giving you a tiny portion of the money they are making off you.
Banks make risky bets using your money. When some of those bets pay off and they make money for themselves, they give you a small piece. Wait till you realize that most banks are super over leveraged. Wait till you learn about a bank run. Oooooooo crazy times ahead.
Think of it this way – *you are loaning money to the bank.* and part of that loan means they have to pay interest on the loan.
in the meantime – the bank loans that money to someone else, at a higher rates of interest than they are paying you. So if the bank is paying you 3% interest, they are charging 4% on the loans they are writing. That allows the bank to pay off the loan they owe you, and make a profit.
what banks do though is advertise as “a safe place to store your money”, and offering you different interest rates (Instead of phrasing it as “can we borrow money from you so we can keep the lights on”).
Interest is essentially rent you are paying because you are borrowing someone else’s money. When you take out a loan, you are renting someone else’s money, and you pay rent (interest) on that money until you give it back. The more you borrow, the more rent you pay. It’s the only reason anyone lends you money.
When you give some money to the bank to keep, THEY are essentially borrowing YOUR money, so they pay rent on it. But they don’t pay you nearly as much rent (interest) as they charge to others. That’s one way banks make a profit.
That’s also the reason some businesses and government entities (like the IRS) charge you interest if you are late. They are essentially saying “You owe us all this money now. You didn’t pay, which means basically you are now renting this much money from us. We should have it, but we don’t, so you are renting it from us, against our will. So we are at least charging rent (interest) on this money you haven’t paid yet.”
Bro you know how much money banks make off of us??
Think about this. You put in $100k to bank. The bank then loans out $100k to someone for a mortgage at 10%. After a year the bank has pocketed $10k OFF OF YOUR MONEY
Is this a real question? They invest your money and use it to make way more money for the bank. Like more money than you can ever dream about having in 5 lifetimes. You’re acting like they are doing you a favor when in reality they are using you and all their customers to make heaps of money
They are paying a rental fee to use your money. They make a profit by taking your money and renting it to someone else for a higher rental fee
Latest Answers