"You're essentially loaning money to the bank, and the bank is paying you an interest rate for that loan," says Anderson Lafontant, a certified financial planner. "But a deposit account with a bank is essentially on the bank's balance sheet, and they're using those funds to go make other investments." This explains how banks use customer deposits to fund loans and investments while offering interest as an incentive.
Not all savings accounts work the same way, nor do they offer the same interest rates. Traditional savings accounts from big banks usually have much lower rates compared to online high-yield accounts, so comparing rates across institutions is crucial for securing the best APY.
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