Q: what would happen if the banks failed again like the Great Depression in the 30's? How would the federally insured money that we put in the bank get back to us if it all went down the drain? Also, we better not have another depression based on all this money that has been circulated through inflation! -Izzy <3

Most banks are insured by the FDIC (Federal Deposit Insurance Corporation), which means that up to $250,000 of any account holder is protected. If a bank fails, the FDIC would help the affected connect with other banks and get their insured finances, or give the same amount via a check. Because the FDIC is independent of the US government, it depends on insurance premiums (or monthly payments) from all of the banks that it insures. Although it has quite a sum of money, it can also receive additional support from the Treasury if there is serious trouble in insuring all affected account holders. In general, the FDIC is intended to create some legitimacy and security in the US financial system even amidst economic crises. Although banks aren't required to be FDIC insured, being so helps customers feel safer putting their finances into the respective banking institution.

Q: Does interest accrue as an average of input over the course of a year, or does it only consider the lump sum at the end of the year?

This depends on how the interest is compounded, whether daily, monthly, quarterly or annually. It pays to check. You may be getting charged on a daily compounding rate for money you owe, and paid on a quarterly rate for money you save. Ask your bank.

Q: Can Interest rates rise or fall?

Interest rates both rise and fall. When there's lots of money in the system that's going noplace, interest rates fall to encourage people to borrow and put the money to work. When there's not so much available money in the system, and a lot of people or businesses want to borrow, banks charge more to loan it out because that's the way that banks earn money.

Q: I'm a firm believer in not putting all my "eggs" in one basket. For instance I work with 2 credit unions and 1 bank. Each works very differently from the other. What do you suggest to be the best diverse balance to hedge a safeguard to your money/savings?

If you are in the USA and your account balance in any single institution remains below $250,000, then that is insured by the Federal Deposit Insurance Corporation. It is safe. The insurance will cover you to prevent loss. You have set up "safeguard" as your standard. You want to hedge things so that your savings are safe. You're stuck there. If you use "grow" or some other standard, there will be a different answer.

Q: Is interest bad?

Think of interest like a fee for borrowing money. When you get a loan, the bank will charge you interest. Meaning that you have to pay back the loan AND a bit extra based on the interest rate of your loan. On the other hand, if you have a savings account, the bank is borrowing that money from you, so the bank will pay you a little bit extra every year based on the interest rate of your account. It is good if someone is paying you interest. It is bad if you are paying interest to someone else.

Q: what happens if banks fail like how will they pay people their money if it isn't available to them or if the us dollar crashes. like a mortgage states if the legal tender changes the contract is void does that mean i would own the house?

You are WAY out there. Since the great depression of the 1930s, when many banks failed (and depositors lost their savings), the US Federal Government requires banks to participate in a deposit insurance plan. ALL federally recognized banks pay insurance premiums based on how much money is deposited in them. If a bank has problems, the money to cover the deposits of accounts less than $250,000 is available so that no small-time depositors lose anything. Don't worry about bank failures. There are many more serious threats out there, like guns in your neighborhood.

Question 1

Are you a bank loan? Because you got my interest. 🤨

Accepted Answer

Good pickup line, go to the bank and tell them that and watch your credit score plummet xD

*Happy Learning*!

Question 2

Can the interest rate be negative? And if it is, does it mean the money will lose value?

Accepted Answer

Interest rates in Japan, for instance, have been negative for several years. The Central Bank there wants people to spend or invest their money, for the good of the economy, so had to move to negative interest rates to discourage saving.

Question 3

interest is mid imo

Accepted Answer

Usually, banks show an APY (Annual Percentage Yield) on their website, which tells customers how much interest they can get by having an account with the financial institution.

Banks provide a wide range of interest rates, but most range between 0.05% and 5%, partly affected by inflation. If you have a high-yield savings account, you could accrue over 5%. On the other hand, if you have a substantial sum of money in any given savings account, you might also receive a higher APY from certain banks. If you want to practice saving, you could also put some of your finances into a CD, which generally has higher APYs.

Interest can be "mid" if you are only receiving 0.1%, but saving your finances in the right accounts can give you high returns!

Question 4

what happens to interest when there is inflation ? for example, interest rate is 5% and inflation rate is also 5%!

Accepted Answer

Interest is sometimes adjusted. Inflation moves back and forth.  Your deposit may get inflated away (as did savings in Russia in the 1990s). Still, savings and investments that pay interest are better than money hidden under the mattress or buried in a jar in the back yard.

Question 5

what would happen if the banks failed again like the Great Depression in the 30's?

How would the federally insured money that we put in the bank get back to us if it all went down the drain?

Also, we better not have another depression based on all this money that has been circulated through inflation!
-Izzy <3

Accepted Answer

Most banks are insured by the FDIC (Federal Deposit Insurance Corporation), which means that up to $250,000 of any account holder is protected. If a bank fails, the FDIC would help the affected connect with other banks and get their insured finances, or give the same amount via a check.

Because the FDIC is independent of the US government, it depends on insurance premiums (or monthly payments) from all of the banks that it insures. Although it has quite a sum of money, it can also receive additional support from the Treasury if there is serious trouble in insuring all affected account holders.

In general, the FDIC is intended to create some legitimacy and security in the US financial system even amidst economic crises. Although banks aren't required to be FDIC insured, being so helps customers feel safer putting their finances into the respective banking institution.

Question 6

Does interest accrue as an average of input over the course of a year, or does it only consider the lump sum at the end of the year?

Accepted Answer

This depends on how the interest is compounded, whether daily, monthly, quarterly or annually.  It pays to check. You may be getting charged on a daily compounding rate for money you owe, and paid on a quarterly rate for money you save.  Ask your bank.

Question 7

Can Interest rates rise or fall?

Accepted Answer

Interest rates both rise and fall.  When there's lots of money in the system that's going noplace, interest rates fall to encourage people to borrow and put the money to work.  When there's not so much available money in the system, and a lot of people or businesses want to borrow, banks charge more to loan it out because that's the way that banks earn money.

Question 8

I'm  a firm believer in not putting all my "eggs" in one basket.  For instance I work with 2 credit unions and 1 bank.  Each works very differently from the other.

What do you suggest to be the best diverse balance to hedge a safeguard to your money/savings?

Accepted Answer

If you are in the USA and your account balance in any single institution remains below $250,000, then that is insured by the Federal Deposit Insurance Corporation. It is safe.  The insurance will cover you to prevent loss.

You have set up "safeguard" as your standard. You want to hedge things so that your savings are safe. You're stuck there. 
If you use "grow" or some other standard, there will be a different answer.

Question 9

Is interest bad?

Accepted Answer

Think of interest like a fee for borrowing money. When you get a loan, the bank will charge you interest. Meaning that you have to pay back the loan AND a bit extra based on the interest rate of your loan.
On the other hand, if you have a savings account, the bank is borrowing that money from you, so the bank will pay you a little bit extra every year based on the interest rate of your account.

It is good if someone is paying you interest. It is bad if you are paying interest to someone else.

Question 10

what happens if banks fail like how will they pay people their money if it isn't available to them or if the us dollar crashes. like a mortgage states if the legal tender changes the contract is void does that mean i would own the house?

Accepted Answer

You are WAY out there.

Since the great depression of the 1930s, when many banks failed (and depositors lost their savings), the US Federal Government requires banks to participate in a deposit insurance plan.  ALL federally recognized banks pay insurance premiums based on how much money is deposited in them.  If a bank has problems, the money to cover the deposits of accounts less than $250,000 is available so that no small-time depositors lose anything.

Don't worry about bank failures. There are many more serious threats out there, like guns in your neighborhood.

Course: Financial Literacy > Unit 2

What is interest and how does it work?

Introduction

What is interest?

How does interest work?

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