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Can someone help me understand HOW a bank is able to pay me for simply having money in their bank?

I have been wanting to open an online savings account. I have been learning about online banking, as the concept of not having a physical bank to walk in to baffles me a bit. I initially felt like the money I deposited would somehow be lost of 'unavailable' when I need it. Now I know that if said bank is FDIC insured then it's safe.

*[b]I understand[/b] that the higher the APY, the more I will earn in interest. I also understand that the lack of a physical location equals lower/no fees.

My question is: HOW is the bank able to pay me for banking there? This is throwing me for a loop.

The grocery store doesn't pay me nor give me any reward for shopping there ...🤷‍♀️
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firefall · 61-69, M
The bank loans your money out to others, at a higher interest rate, and keeps the difference as profit.

FDIC guarantees that you'll get it back, even if the borrowers default (at least up to $100k).
plungesponge · 36-40, M
If you have the patience to watch the whole thing, it'll change the way you view the world

[youtube=https://www.youtube.com/watch?v=mII9NZ8MMVM]
Zeusdelight · 56-60, M
You are letting the bank use your money in any way it wants. It can invest it and make money from it.

If you simply have an account that you can withdraw money any time you will get a small interest payment.

If you invest money for a specific time, a term deposit, the bank will pay you more, because it knows it can use the money for that time.
MilitantIrishman · 26-30, M
They use your money to make money.
Oster1 · M
It’s simply because they use your money to reinvest in other loans that pay the bank interest. These monies help the bank to operate and help others. They also collect other interest from other other operations like credit cards and other banking fees. I have no problems with an FDIC insured online savings account and is a wonderful way to save money. Out of sight, out of mind. It’s complicated but I gave you an over simplified explanation.😊🌺
DMmeyourtits · 26-30, M
They use your money for investments that bring them profit. Your interest rate is basically a part of the profits they earn from their investments, which they used your money for. So you could also invest, earning a higher interest on your capital, but letting the bank do it for a guaranteed interest rate for you is 99.999% safe.
You deposit money in the bank .

The bank then has more capital to work with .

The bank then loans it out to other people at a higher interest rate.

They pay you a minimum interest rate and keep the difference.
fanuc2013 · 46-50, F
Easy, they loan everybody's money out and the borrowers pay it back with interest. The bank gives you a portion of that interest.
quitwhendone · 46-50, M
They take your money and loan it out to multiple people at once. When they loan money, they open up a new account for that business customer and credit their account with the money you deposited. Then they do the same for another business customer with the same pool of depositers' money. It works because everybody doesn't need to draw on the funds at the same time. So they can take $1,000 and credit it (loan it) to several accounts at once. So your $1,000 becomes $6,000 or $7,000 out in loans. They get interest on each loan. Thus, they make money.

But you would probably have to keep a fairly good sized average balance to reap any interest. They usually require you to get a Certificate of Deposit (CD) or maybe keep a $5,000 balance before you get paid their very low interest rate.
iamnikki · 26-30, F
Thanks everyone!
My goal is to open an online savings account by the end of the year. Still searching. Wish I had done this years ago but...the more you know
Oster1 · M
[@467302,iamnikki] Great news! It’s never too late to start saving! The more that is in there, the less you will want to spend. Never spend on anything unless it’s an emergency.😊🌹👍
iamnikki · 26-30, F
[@400392,Oster1] true. I'm pretty good at saving so this will really help
Emortal · M
They like the way you look.

 
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