How does money gain value? Why would £100 from 100 years ago be worth more now?
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Over time, money loses buying power due to inflation…
But if you’re talking about money in the bank or invested, savings accounts pay interest. This is payment for use of the money. When you deposit money into a bank, that allows the bank to turnaround and make loans with it. They may charge 5% on a home mortgage and pay depositors 2% on their savings — the 3% spread is the banks operating income.
But your money also compounds. They pay 2% on your $100 this year, but next year they pay you 2% on $102. And the next year on $104.04… after a while, the year to year jumps are bigger relative to the original amount.
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