How can it be that savings account interest is so little? And interest on loans is so much? It doesn’t make sense to me!

Interest rates paid by banks and savings institutions on savings accounts are low because those accounts are “demand deposit accounts” as opposed to “time deposit accounts”. That is to say, the money is held at the demand of the depositor. A depositor can come into the bank or savings institution at any time and demand the balance in full paid to them in cash. As the bank will invest deposits at higher rates than they pay on deposits, and in order to create a margin between what they pay and what they earn, banks need to commit funds for a specific length of time in an investment. As they cannot count on a demand deposit being held in the account for any specific period of time, though they are willing in most cases to pay a small amount of interest, they cannot pay larger rates without a time commitment on the part of the depositor.

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