Why do Some Banks Offer High Interest Savings Accounts?

Banks are in business to help circulate and manage money. To be able to manage money, they need to have access to money, one of the tools (or products) that is used to do this is through high interest savings accounts. When you deposit your money into a high interest savings account, the banks are basically paying you an interest (fee) for the ability to borrow your money and use it to generate more money. You can still always access your money and if you choose a financial institution with depositors insurance, your money will be safe. However, while the money is on deposit, the banks use the money for their daily operations – whether it be for investing or loaning out to other people.

It is not mandatory by law for banks to be required to hold onto any reserve requirements for savings accounts. Thus, they can use your money more freely and you get paid a higher interest rate for the deposit. The money on deposit at banks is used for such transactions as mortgage funding, providing personal loans, and financing car purchases.

The money you have on deposit at the bank will have a lower interest rate than the money that you borrow from them – since that is how they generate profits. For example, if you have $1,000 on deposit in a bank and the interest rate is 2.5% paid one time annually. You stand to make a $25 profit . However, say someone else comes in and needs to borrow $1,000 and the bank agrees to do so at a 10% interest rate to the same terms you are getting payment. The bank will make $100 in interest charges, which means $25 will go to you and $75 dollars will get to them.

No matter how clever their marketing is or how friendly their tellers are, banks are a company specializing in money. It is their job to generate money and to do so, products like high interest savings accounts are introduced to consumers.