Money-go-round
Get the low-down on banks to see how money can make
money
How do banks work?
Banks work because we trust them. We are confident that they
will keep our money safe, make it grow and give it back to us
when we ask for it. But did you know that as soon as we give
the bank our money, it gives it to someone else? This is because
a bank is like any other business, the difference being that
their product is money. Banks use money to make money.
It works the other way too. It is also possible to borrow
money. In the same way as banks pay out interest for saving
with them, they also charge interest for lending. For example,
if someone borrows £100 for a year at an interest rate
of 10%, by the end of the year they will owe £100 plus
£10 interest. The total they have to pay back will be
£110.
If someone wants to buy something they can’t
afford, they can either save the money to buy it later or borrow
the money to buy it now. But if they have to pay a lot of interest
to borrow the money, they might decide not to buy it straight
away.
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