Interest rates directly influence consumers’ ability to earn decent returns on deposit accounts.
An interest rate is the percent of principal charged by the lender for the use of its money. The principal is the amount of money lent. As a result, banks pay you an interest rate on deposits, because they are borrowing that money from you.
Usually banks use the deposits from savings or checking accounts to fund loans. They also pay interest rates to encourage people to make deposits.
High interest rates encourage more people to save because they receive more on their savings rate whereas with low interest rates the saving rate falls. Savers find they get less interest on their deposits, they might decide to spend more. They might also put their money into slightly riskier, but more profitable, investments. That drives up stock prices.
In the case of a savings account, the interest is compounded; either daily (best) or monthly or quarterly, and you earn interest on the interest. Hence there are different types of savings account for this purpose of earning interest. Saving money is seen as one of the quickest way to gaining wealth. And banks compete with each other for these competitive interest rates so to gain necessary clients.
And at the same time, banks compete with each other for both depositors and borrowers. The resulting competition keeps interest rates from all banks in a narrow range of each other.