How can the bank pay for the interest?

Question

Let's say that I have $100 in my bank account, and the yearly interest is 5%. Which means that in two years, I will have $110. Am I correct? The question is, where does the extra $10 came from, and who pay for it? $10 doesn't seem to be much, but when it comes to Bill Gates's account; who pay for that money?

Answer 1

I doubt you are getting 5% from a bank these days.  They get the money to pay interest, and to pay all their other bills, form 2 places.  One is interest on loans the make (car loans, mortgages, etc.).  The other is FEES.  Contrary to popular belief fees are the larges source of income for many banks these days.  The people that overdraw their accounts are paying the interest, and the tellers, the light bill, etc.

Answer 2

The bank gives you the money into your account most likely and then you have to pay taxes on it. If it's a small amount you don't have to. Bill Gate's wealth is mostly in his company and his stocks, not necessarily sitting in his checking or savings account. The thing is that if the bank is paying you 5% for your money, you can rest assured that when they are investing it they are getting more than that.

Answer 3

Your using a 5% simple interest. Most banks will compound your interest daily. It takes money to make money. You lend them your money and they pay you 5% and then loan it out and make anywhere from 7 to 25%. So using other peoples money is how a bank survives. And then they make a bunch of bad loans to people and end up going broke like Indymac bank did. There was some help from the institutional traders and Chuck Schummer in running that bank down. But over all thats how they do it. And the cycle goes round and round then the goverment will once again bail out the banking system on the tax payers dollar.

Answer 4

Math and I are friends but only at a diffrence and I have no idea..........Blessings/Blessings Yahoo