BF2S Forums Someone explain finance to me, in layman's terms

The savings rate is variable, it could go down to 0.5%, or it could go up to 10%. They could just be offering 2.5% to sucker you in, then they'll drop it.
The CD rate is lower but fixed, over 5 years could be a better bet than the savings account, or it could be a worse bet.

If you take the savings account you're betting the average savings rate over five years will be >1.4%
If you take the CD you're betting the average savings rate over the next five years will be <1.4%.

The bank hopes you bet wrong, thats how they make money.

Banks offering 0.02% are just hoping you're too stupid to notice, or shop around, or its just a checking account and you get a free chequebook etc.

Last edited by Dilbert_X (2009-02-03 18:34:07)

The interest rate is how the banks make money.

When you save up all your hard earned money throughout your life and deposit it in the bank though, you can earn interest from it. It works in reverse.

Self-funded retirees usually live off the interest they earn while having a large sum of money kept with the bank. However, if they are on variable interest rates, they are currently not earning much because the economy is rooted (for lack of a better term) so you have low interest rates.

If they were on a fixed rate that was set in better times with higher interest rates they'd be sitting rather pretty at the moment.

Low interest rates at the moment are only good for banks if it is variable rates they are offering for loans.