How do bank interest rates work?

Bank interest rates are the amount of money that a financial institution pays to customers for holding their deposits. Interest rates are set by the bank based on a variety of factors, including the cost of borrowing money, the rate of inflation, and the demand for loans. Banks use interest rates to encourage customers to save their money and to lend money to borrowers. Typically, the higher the interest rate, the more attractive it is for customers to save their money in a bank account. On the other hand, borrowers may be deterred by higher interest rates as they increase the cost of borrowing money. It’s important to note that interest rates can fluctuate over time, so it’s a good idea to regularly check with your bank to ensure you are getting the best rates.