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Having money means you automatically get to have more money - ie interest, rent, investments.
Why is that crazy? If I loan the bank money and they make money on my loan I should get paid for it.
How does the bank make money from your money?
If I leave a pile of money in my closet, it doesn't grow like mold.
Banks use your money to invest. They only have to have a small percentage of their holdings in cash on hand so they can invest, make money, and pay you interest.
Your money isn’t just sitting in a vault at your local Bank of America branch.
Exactly. And that's why banks pay you to give it to them instead.
Banks provide a valuable function to society that works on two sides:
- There's a group of people who want to keep their money safe
- There's a group of people that need a loan to get started in a business that will then make money and improve society
The bank takes all the money that has been deposited and makes the loan, charging interest. It then pays the depositors (less) interest to incentivise them to put money in the bank (instead of under the mattress).
In order for society to advance and grow you need a source of finance to get things off the ground. Anything from small businesses to massive infrastructure projects. Banks help facilitate that.