What is interest?
The financial institutions want you to invest more so they have more money available to loan. Financial institutions are required to keep a percentage of their assets in the Federal Reserve Bank. They want large stable accounts so they know how much money they can lend. By lending money, they can make more money by collecting interest on the loans. That is how banks stay in business.
How often do you look for investing advice only to find phrases like “minimum investment required” or “on balances of $500 or more”? Every financial institution has rules that they establish to define when it is worthwhile for them to pay interest. Think about it. Institutions track every cent in every account to calculate the interest they pay. It becomes a monumental task.
Yes, they have software to track the balances, and they have computers to add the interest paid. How do they pay interest on $100 at .25% interest rate per year? First, understand what percent really means. One percent means that it is equal to one cent per dollar. Therefore, .25% interest rate is an integer of .0025 or ¼ of one cent for every dollar per year. Another way to look at it is as 25 cents for every $100 per year.
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