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You are watching: Why do banks pay their customers interest on the money in their savings accounts?


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The interest rate is the quantity lenders fee borrowers and also is a percentage of the principal. The is also the quantity earned native deposit accounts.
Discrete compounding describes the method by which attention is calculation and added to the primary at certain set points in time.
The annual percentage productivity (APY) is the reliable rate the return ~ above an investment for one year taking into account the impact of absorption interest.
Annual portion Rate (APR) is the interest charged because that borrowing that represents the actual yearly cost of the loan, expressed as a percentage.
An automatically reinvestment plan is a common fund setup that immediately reinvests resources gains ago into the fund.

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Compound attention is the interest on a loan or deposit the accrues on both the early stage principal and the built up interest from previous periods.