Only logged in members can reply and interact with the post.
Join SimilarWorlds for FREE »

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 ...🤷‍♀️
This page is a permanent link to the reply below and its nested replies. See all post replies »
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.