What does a bank do with a kids money that is deposited?
Irrespective of who deposits the money, the bank would lend it
to loan customers and earn interest income. Based on this income,
the bank would provide a certain interest amount to the
depositors.
Ex: If you deposit $1000 in a bank they would lend it to say me.
I would be paying interest to the bank on a monthly basis as EMI.
let us say I pay back the $1000 in 12 EMI's as $100 then I will pay
the bank $1200.
The bank would give you an interest of say 8% per year and hence
you will get $80 as interest. The remaining $120 would be used by
the bank for its expenditure and income.
Related Q&A：
What is interest paid on an original amount deposited in a bank plus any interest that has been paid-Well, that's what we call compound interest! You know, when you deposit money in a bank, they pay you interest on the initial amount. But then, in subsequent periods, they calculate the interest not just on the original deposit but also on the interest that's already been added. So, it's like this growing snowball of earnings. It can really make your money grow over time! It's a great way to increase your savings if you have the patience. Isn't that neat?
