When banks lend you money , they suck your blood in interest payments

[UndertheOcean]

yet when you attempt to start saving for the first time , the interest is 0.01% <== what the fuck is this ? a joke ?

[GoneOffShore]

1. Try a credit union - minimum savings rate with mine is .4%

That's with a basic share account. Plus you get interest on your checking account.

[msongs]

2. WOW 0.004 cents on every dollar!!!!!! those credit unions rock lol nt

[GoneOffShore]

5. That's the rock bottom minimum for a $5 deposit.

There are other rates available - via CD's, etc.

But in case you hadn't noticed, all interest rates have dropped.

A credit union is still a better deal than a bank.

And saving money is still better than living on credit, if you can do it.

[Travis_0004]

3. Easily Explained

The odds of you defaulting on your credit card debt is quite high, so there needs to be some interest to make a profit.

On a savings account, the odds of a bank defaulting are quite low, so people don't demand higher interest rates.

They borrow money from you, and loan it to other people, plus pay for employees, overhead, people who default, etc. I'm not saying I agree with 27% interest rates, but at the end of the day you agree to the interest rate when you sign up for the card/loan, and there are lots of protections with the card act.

[hobbit709]

7. Yeah, like when Chase upped my rate to 31.99%

Just because they could. Never missed a payment, never late and always paid more than the minimum. Transferred the balance to my new credit union card with 0% on balance transfers for a year and I'll have it paid off in about 8 months. Told Chase I was canceling their two cards and they seemed mildly surprised when I said "I don't like paying 32% for no good reason." when they asked why I'm canceling. I have 3 other cards where the highest interest rate is 14.99%.

[Igel]

4. #3 was sort of right.

In a free market.

Our house loan interest rate is fairly low. We had a good credit rating. We put down sufficient down payment. We're good credit risks. They make money, but stand to make money, overall.

Down the street "John" has a higher interest rate on his house. Worse credit rating. No down payment. Not so good credit risk, probably shouldn't have gotten a loan. They might lose money. To make money on his risk class they need to charge higher interest rates. The increased income from John covers losses incurred because of bad loans to his peers. Is John really those deadbeats' peer? Perhaps not. But given predictive statistics, he looks like it so that's where his loan application landed him.

Credit cards are even worse. Our credit card rate should be low, 5% or less. It's not, because they don't disaggregate debt risk. Not only am I, FICO score of 812 or 813 at last check, lumped in with John, but I'm lumped in with many of his friends by default. Now, if I actually give evidence of screwing up--missed payments, for instance--then my rates skyrocket.

That explains the high. Now for the lows.

The Fed is currently lending money at 0-0.25% to the banks. If they need money, they can borrow it for nearly free from the Fed. Why should they borrow it from you at 1%? If *you* could borrow for free from the Fed, would you borrow money at 1%? Fed sets the interest rate; the difference between "best" loan rates and savings accounts rates is, or used to be, the profit margin.

Of course, that means for our house mortgage at 4.5% and interest paid to us on savings of 0.1 or 0.2% the profit margin is 4.4% or so. That's high, historically, but also builds in a bit of credit-risk (since we could, conceivably, default) as well as inflation fears.

Then there's the fact that the company has employees, buildings, etc., etc., for that profit margin. Moreover, not only does it have those, and need to pay dividends on stock, but it has to keep the stock price up for future stock offerings and to keep investors--private or public--happy.

As a consumer, I don't like it. Were I to sit and play "money" for a long time, acting as banker, paying out dividends, making loans and taking in savings I think that what I'd come up with wouldn't be too horribly different in principle from the state we see. I'd like to think my extreme rates wouldn't be so extreme. That's probably just vanity talking.

[dmallind]

6. All true but misses out (or potentially skims) biggest valid reason

NPV. Yes inflation is part of it but not all.

Banks give you $200K in a mortgage now for $350K or so which sounds like a lot of profit - but they have to wait 30 years for it.

There is a reason almost all big lottery winners opt for the much lower lump sum. Last time it was big and I scanned an article on it a $260M jackpot only paid $134M (gross of taxes) or you could have taken approximately 8.6M a year for the next 30 years.

Ask yourself which you'd take and why and that explains interest rate spreads more than anything.

[Hosnon]

8. Interest isn't inherently bad. nt.