Where do banks get the money to pay you interest?

Question

Like if you have 10 million dollars at a bank and they pay you 4.25% interest....Thats like 425,000 a year(before taxes) Where are they getting all that money from, arnt they losing money over time? where do they get it from?

Sorry, its probably a stupid question but i just don't understand where banks get the money to pay you interest.

Answer 1

From the 30% interest they're getting from loaning out your money to credit cards.

Answer 2

Banks use your money to invest in other things with a much higher return than the interest they pay you. Of course, sometimes they s***w up and lose money and then there is a scandal but normally someone else (the Fed?) will bail them out.

Answer 3

At the same time they're paying you 4.25 percent interest on your money, they're loaning it out to people who are paying *them* 6 or 7 or 8 percent interest for the privilege of using it!

(By the way, people who have 10 million dollars in real life don't have it all sitting in a bank earning only 4.25 percent!)

Answer 4

Short answer... from other people.

Believe it or not, when you put money in the bank, it doesn't go into a small box that has your name on it. It goes into their safe (the bank) along with everyone else.

They keep track on your money electronically.

So when you happen to earn 3 bucks on your savings account this month (let's stick to something more reasonable, instead of 10 million)... the 3 bucks gets pulled from someone else's account, normally from interest someone is paying on loans, overdraft fees, etc.

Also... FDIC insures bank accounts up to 100,000 dollars. So if someone had a million, (and they were smart), they'd have their money between 6 or 7 banks, with some tied up in investments, stocks and bonds.

Hope that helps.

Answer 5

If you want the real answer,  look at the video link below. It is done in a way that anyone can understand, even me.

It will amaze you how they make their money. It's very enlightening and brilliant in a George Orwell (1984) kind of way. Enjoy..

Money as Debt Video-- available on google video