ANSWERS: 4
  • So you put your money in them
  • Basically, interest is a rental fee that the bank pays you for letting them hang on to your money. When you deposit money in a savings account or a CD, it doesn't just sit there. Banks use the combined savings of their customers to do things like give people loans and mortgages. Banks will pay you interest on this money becuase they're basically borrowing it for other stuff while you leave it there.
    • Thinker
      Because of "fractional banking" banks are required to only have 10% of their loans in cash. They create the funds required for a loan out of thin air (actually only a computer entry) of all but 10% of that loan. We in turn must repay the loan at interest from our funds which are only computer entries from when our paychecks are direct deposits into our account from our employer. Even when you are given a physical paycheck it is recorded as computer entries when you deposit it in a bank or even cash it. It eventually is no more than a computer entry. Most currency doesn't actually exist.
  • It is a fee they pay for the use of your money. The small amount they pay to you is used to make investments that pay better interest than they give you. You get a very small % of interest on some accounts because you can draw it out at any time. Therefore, they can't use it on high return investments for a longer period. A CD pays better interest because it means they will have your money longer and can put it into things for a longer term that pay better interest.
  • To encourage people to deposit money in banks. It's also one way of thanking depositors, because these banks use their money to lend money to other people, for example.

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