Let’s talk about savings accounts
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Bridget! Bridget! Check this out! Ryan, what's with the giant wooden crate? I've invested in something that is going to revolutionize Million Bazillion as we know it. I just need to open it up. What the? Be careful! Nearly there! Ow, splinter! What does that say across the top? The all-questioning questiony?

Well, Ryan, is this like one of those old vintage fortune teller machines? Like they'd have it like a circus or a carnival or something. You put in a quarter and it spits out a card with your fortune written on it. Yeah, our old friend Jean from the arcade machine warehouse specifically modified it for us. Instead of giving out our little fortunes, it gives out money questions from our listeners. Really? That is amazing. That could really help us speed up our process.

Can you imagine if we could answer more questions for a season than ever before? I know. This show would be unstoppable. Okay, let's plug it in. And all the lights in the building just went out. Okay, hold on. Let me fix that.

Welcome back to Million Bazillion, the show that answers the questions you have about money. I'm Bridget. And I'm Ryan. And we help dollars make more sense. Let's hear today's question now from our very cool, high-tech, and totally fixed so it's working perfectly, all-questioning questiony question machine. I am the all-questioning questiony.

You want answers, but I've got questions. There's money different in every country? Why do we have pennies? Why do we pay taxes? What is counterfeit money? Why do stocks go up and down? Why are the smaller versions of things more expensive? How does my money grow in a savings account? Why do banks pay you to keep your money there? Whoa, whoa, whoa. I'm not sure you quite fixed it there, Ryan. Hold on, my bad. Let me just tighten this last lug nut. Wait, play those last two questions again. Maybe we can answer those. All right, let's try this again. Hold on, let me just bang on the side here. Hold on.

I'm working stupid. I know I'm a zillion. My name is Perry. I live in Clarksville, Indiana. My question is, how does my money grow in a savings account? Hello. My name is Cooper. I live in Sacramento, California. I am nine. And my question is, why do banks pay you to keep your money there? Thanks.

Oh, wow. OK. It gave us two at once. So Perry wants to know how money grows in a savings account. And Cooper wants to know why banks pay you to save with them. OK. So these answers are kind of related. Think we could answer them both this episode? Oh, we definitely can.

So to answer these questions, we're going to need to talk about those savings accounts that Perry mentioned and Cooper referenced. That's a place to keep money you don't need or want to spend right away. What makes a savings account with a bank different from, say, your piggy bank or an envelope in your dresser drawer? Or a giant hole inside your mattress? Whoops, I shouldn't have said that one out loud, actually. Wait, Ryan, you're not actually keeping your money in your mattress, are you? Well, not anymore. Now I have to find another place to hide it.

maybe there's some room in Skimble Shanks' litter box. Ew, Ryan, you should really have that money in a savings account. Both Perry and Cooper are right. One of the cool things about savings accounts is that the bank will pay you interest for keeping your money with them. That means you can actually earn extra money on top of what you saved on your own. And it's called interest.

Interest? I know that I have a lot of interests. Musical theater, monster trucks, that one dress that look white and gold or blue and black, depending on who you asked. No, no, no, not like that. Interest when we're talking about savings accounts means the money the bank pays you for keeping your money with them. Hold up, hold, hold, hold, hold on here, hold on here. You're telling me the banks are...

You know, understanding how banks and savings accounts work are crazy.

skills that we should all learn as we're growing up. Yeah, but banks can also be like the most boring places on earth. They can feel so grown up and stuffy. They have a lot of rules. And if you break those rules, you have to pay fees. But there are so many things you have to use a bank for when you're an adult. So you might as well know how they work. And on the bright side, some banks do give out lollipops. Really?

I've only ever gotten free pens, but you have to work really hard to get it off that little chain. Oh, you are not supposed to take those home with you. Why would they put them out for you then? Okay, we have some pens to return, but when we come back, we'll get the answer to Perry and Cooper's questions right after this. And now it's time for asking random kids not so random questions. Today's question is, if you had your own bank, what would you name it?

If I had my own bank, I would name it the Penguin Bank. I would name it the Kinder Interest Development Bank or the KID Bank. Cecilia's US Bank. Rara's Superbank. Area 51, Superstellar Bank. If I had my own bank, I would name it Crazy Snake Bank.

That was Elena and Benjamin in Texas, Ashwin in Washington, D.C., Cecilia in Colorado, Emiliano in California, and Sebastian in Minnesota. This has been Asking Random Kids Not-So-Random Questions.

And we're back. Today, we're going to learn about savings accounts and also get the answer to some insightful questions from Perry and Cooper that have to do with how banks actually pay you to keep your money with them. I think we're really onto something here. I can't wait to see how this plays out. OK, so for this one, I think we need to actually go to a bank, right? And maybe we can ask someone there. Oh, the bank. It's so boring. I don't want to go to the bank.

Ryan, come on. This is where they keep all the money. You know it's going to be cool. Look, if it makes you feel any better, I'll let you pick the bank. Really? Okay. Well, there's this one a few blocks from here that I've seen, but I've never gone inside. Can we go there? Sure, let's go. Race you there. Ryan, are you sure this is a bank? It doesn't really look like one. No, you see, it's Big Top Bank.

This bank caters to people who work at the circus. Isn't it amazing? Aren't banks supposed to be quiet and calm?

Why are there clowns here? Clowns are not my favorite. Look at that pony riding his little tricycle. Look, he's even got a little matching hat. And is that lady breathing fire? Uh-oh, Bridget, here, I sort of singed your hair there a little. Wait! It's really not that bad. Okay, oh, look, it's our turn. There's a teller free up there. She's wearing a clown nose, and the teller at the window next to her is actually a chimpanzee in a bow tie.

I know, isn't it great? Looks like the chimp has a customer, so let's go with the clown. Next customer, step right up. Step right

Hi there. I'm Peppy Penny. Welcome to Big Top Bank, the premier banking establishment for circus professionals. How can I help you? Hello there, Miss Penny. My name's Ryan, and this is my co-host, Bridget. We host a podcast for kids about money, and we're trying to answer some questions from listeners who basically want to know, why are you paying people to bank with you? Yeah, he means interest. Why would this bank or any bank pay people to save money? Like, how does the math work on that? Oh, that's a good question.

Oh, that's a great question. I would be so pleased to answer. See, it all comes down to this. The bank wants you to be a good saver and is trying to give you reasons to grow your savings. Because when you deposit your hard-earned savings at Big Top Bank, your cash doesn't just sit in the vault in a little box with your name on it. It doesn't? But aren't you supposed to be keeping everyone's money safe? What kind of clowns run this place? Well, there's Bozo the Clown, Binky the Clown, Cocoa

the clown okay fine i walked right into that one but i don't mean which literal clowns sit on the board of this bank i mean like what kind of business are you running here and what are you doing with everyone's money well the bank's business is to lend money back out into the world

It starts to move through your community in the form of loans that can help people buy a house, a car, or start a business. To make those loans, the bank needs lots of customers who are good savers with nice, full savings accounts. Then, the bank can borrow that money from you and make those loans. The people who get the loans then pay them back eventually, plus a little bit extra. And that's how the bank makes money.

Oh, yeah, I get that. That makes sense. Yes. OK. Banks and the loan. For example, do you see that clown over there? The one with the rubber shoes? Yeah, that's Jumbles. Last year, he wanted to settle down with his wife and have a few clown kids. They wanted to buy a clown town car, you know, for his family to cram into. But they didn't have enough money to pay in cash. So we loaned them the money and they paid us back with a little extra over time.

And they did the same thing when he came back to buy a clown town house. That house loan is called a mortgage. And they pay us back a little bit each month, plus the interest. I see. Oh, and you see that man over there? The great marzipan? Oh, yeah, with all the tiny dogs. He's a loyal customer to Big Top Bank.

Years ago, he came in with an idea to open a touring circus act featuring small dogs. You know, chihuahuas, a few terriers, and a little Pomeranian in a poodle skirt. It was the Pomeranian in the poodle skirt that really did it. Our bank manager just knew that the great marzipan had a winning idea. He just needed a little extra money to help fund his first tour.

So the Great Marzipan took out a loan for $50,000 from this bank. You just gave some guy $50,000 for a dog show? No, no. We loaned him the money.

The Great Marzipan had to pay us back. And he did. He paid back the $50,000 that we gave him, plus an extra $5,000 for us in interest. We wouldn't lend money to someone who we didn't think could pay it back. That's just not good business. But I'm confused. What does the interest the Great Marzipan pays on his loan have to do with the interest the bank pays me for my savings account?

Well, you're right. The bank is paying out interest to savings account holders. And the bank is getting paid interest by loan holders. It's the same word and it can be a little confusing. Yeah. Yeah, it kind of is. Yeah. Just think of interest as the price for borrowing money. And when you're lending your money to the bank by keeping it in your savings account, you get to be the one that's paid the interest.

How much money are we talking about here? How much am I going to make of my interest? It depends. First, on how much you have saved, and then on the bank's interest rate. Some banks offer pretty low rates, like less than 1%. Ouch! That's less than a penny on a dollar! But other banks offer closer to 4 or 5%. You just have to ask the bank.

Wait a second, what's to stop the bank from lending out so much money they won't have any of it around when I need it? Oh, well, of course, Big Top Circus Bank is insured by the FDIC for up to $250,000 per account. FDIC, what's that?

The FDIC is a part of the government. It was formed after a lot of banks lost a ton of people's money during the Great Depression in the 1930s. That sounds bad. Yeah, it was bad. People weren't too excited about putting their money in the bank after that.

To restore everyone's trust in the banks, the government insured it. So that means that even though the bank is using the money in your account to loan out, you're always able to come back and get the amount of money that you deposited at any time. Wow. So what happens when a big bank fails now? Well, the government just kind of bails them out. Well, this has been really informative. Thanks for your help, Peppy. Anytime. Next customer, step on down.

All right, so the banks pay you extra money when you have a savings account with them, and that's called interest. And that can help you make more money from your savings than keeping your dollars locked away in a box or a mattress. And the bank does this so they can do the other part of their business, making loans and charging interest on those loans. Ryan?

We did it. We answered Cooper and Perry's questions. And in record time. Yeah, we're really on a roll. Why don't we head back and see if the all-questioning question-only question machine has any more questions we can answer? You got it. See, machines always make everything better. I see absolutely no risk or downside. Okay, we'll answer more questions when we come back.

Welcome back to Million Bazillion. Today, we answered some questions about savings accounts from listeners Perry and Cooper. Just work already. It shocked me. And well, the other thing you should know is Ryan bought us this really cool questions machine, which is still kind of malfunctioning. And that's why we had two questions today. But it was no biggie. Anyway, Ryan's hard at work trying to get it to give us our next question. I'm sure it's going really well.

I'm almost there. I got it. Okay. Okay. Hi, my name is Roman from Rockville, Maryland. And my question is, what is compound interest and how does it work? Thank you. Thank you, Roman, for listening and for that question about compound interest.

This is actually highly relevant for today's episode. Also, I'm starting to wonder if the all-questioning questiony machine is actually just an ATM in disguise. Get it? Because all the questions are about banks. Unfortunately, we can't ask it anything. It's the all-questioning questiony, not the all-answering answer-yony. Yeah. Okay, so remember when we went to the big top bank and we learned that banks pay you, the customer, for keeping your money at their bank, and that's called interest? Yes.

Well, most banks in this country calculate how much interest to pay each customer each month using compound interest. It's kind of like this. Pretend you have 10 bananas and you're going to keep those bananas at my banana bank and I am going to pay you compound interest for keeping them there. Uh-huh. Okay. Bananas. Sure. I've got them right here. In fact, how about I just juggle these 10 bananas? That seems easy. Okay.

What's my interest rate going to be? The rate of interest that I'm offering is going to be 10%. Wow, 10%. I'm heading to that bank right now. I'm just using that number because it makes the math a little easier for this example. Remember, Peppy Penny said interest rates right now are closer to like 1% to 5%. Oh, right, right. Proceed. So if the interest rate is 10%, that means for every 10 bananas you have, I will give you one banana and I'm going to calculate that once a month.

It's a deal. Okay, so you give me 10 bananas, and at the end of the first month, you're going to get one new banana that I'm paying you in interest, okay? Right, right, because 10% of 10 is 1. Right, okay, so now here's the compound part. I'm adding that new interest banana to the same pile of bananas that you first brought into my bank. So here, let me just add that banana. Do you have room to hold, like, these 11 bananas? I can manage. Just throw it at me. Okay, here goes. All right.

So then next month, I'm calculating your interest based on 11 bananas. Your interest rate is about one more banana. So we're going to add it to the pile. Now you have 12 bananas. This is great. I didn't even really do anything, but now I have two more bananas than when I started. I kind of wish I hadn't committed to this juggling bit, though. It's both hard to do and our listeners can't see it because we're a podcast. I'm sure they appreciate the spirit of it, though.

Okay, so compound interest is when your interest bananas start making interest bananas. So let's fast forward a couple months. You're still making compound interest and now you have 20 bananas, the 10 you started with and the 10 new bananas that I have paid you in interest over these last 10 months.

Okay, new idea. How about I take my 20 bananas and just hold them like in a basket or something? Good idea. And guess what? Here's where compound interest starts to get really cool when you're the one making that interest and not having to pay it, okay?

I'm now going to give you two new bananas a month in interest because I'm using your pile of 20 bananas to calculate that 10% interest rate. So now I owe you two bananas every month. So your money is going to keep growing. And the best part, the interest you already earned is actually helping you make more money in the future. So compound interest is like having a lot of bananas? Yeah, exactly. But why would I ever need this many bananas in the first place? Hmm.

Hmm. I don't know. Maybe you have a gorilla. Maybe, but even a gorilla is not going to eat that many bananas. Maybe you need peels to throw at other cars during races like in Mario Kart. Good point. Okay. I'm on board now fully. Wonderful. Okay.

Now, I want to share one other cool compound interest trick with you. So for this, I'm going to ask a friend to help me out. And he's going to tell us a really cool way for figuring out the power of compound interest when it comes to growing your savings. And it is called the Rule of 72. My first name is Yosa and I'm from Arkansas.

So rule 72 is something that helps you calculate how long it will take you to double your money. This is so practical. And the way it works is you take 72 and you divide it by the interest rate on your savings account. And so the result is the number of years it will take you to double your money if you just leave it in the account and you don't add to it. Yosef, can you give us an example? So the interest rate is going to be 10%.

It's 72 divided by 10 in this case. If it's 72 divided by 10, then you add the dot into the middle of 7 and then that's 7.2. Amazing. Okay, so in 7.2 years, if you didn't touch your money, but you let it sit in the bank at an interest rate of 10%,

You double your money. I love that trick. Wow, thanks, Yosef. I'm really starting to get the hang of all this. Maybe I should open up a savings account after all. That is a great idea. Uh-oh, it looks like that chimpanzee from the clown bank followed us home and wants in on our banana stash. For him, bananas are like money. Hold that thought about the bank account. We're going to bake a bunch of banana bread real quick, and we will be right back. Go away. No one's home.

Hey, everyone. We're back. And we've got something special for Ryan and for those of you who might be interested in starting a bank account. That's right. I'm going to join the legions of adults with bank accounts. A bank, like any financial institution, can be a little scary. But that's okay because I'm going to get help from a listener who, in fact, has her own bank account. Give it up for Ava. Yeah. Yeah.

Hey there, I'm Ava from Minneapolis. I love dogs and swimming. I've been banking since I was seven years old. Okay, I can tell I'm in good hands. For you listeners out there, feel free to pause and write anything down or come back and listen to this section a few times. You know how a podcast works. And we're going to have more information for you in the show notes for this episode and also at our website. That's marketplace.org slash million. Okay, so Ava, what's your name?

I bet before you picked out your bank, you did some research, right? Because there are a lot of types of banks out there. Like there's your traditional bank. There's small banks. There's big banks. There's credit unions. Even online banks that have no physical location. Right?

So what'd you end up going with? I went with a traditional bank, which is convenient because it has a location right near my house. Well, Ryan, we should do some research for you before we get started. Pick a couple banks that are like easy for us to get to. And then let's try to learn more about what they offer. Like what interest rate are they offering? I'd also wonder if they have a special account for kids under 18. Do they recommend a joint account or a custodial account for a kid like me? Do I need to have a minimum amount of money to get started? Wow. Those are really good questions.

Ava, how did you pick the bank you ended up at? Well, I went with the bank my parents use. I bet a lot of people do that. Yeah. And one last thing, you will need identification to open an account. So maybe your birth certificate or your social security card. And you're probably going to need your grown-up to go with you. So once you've got all that, you are all set. Then it's time to head to the bank. You are excited. You are ready. You got this.

So here we are, outside the bank. Not the kooky circus bank from earlier, just a regular bank. Well, you're not a circus performer, you're a podcast host. And until they make a bank for podcast hosts, we're just here at the regular bank. Ah, yes, always the practical one, aren't you? Are we ready to go inside? Yeah, let's go. Ready as I'll ever be.

So this is one of those fancy banks, like with marble floors and walls and high ceilings. Yeah! What's the vibe at the bank you go to? It doesn't have marble or anything. It's got carpeting and everything is sort of a tan gray color. They do have free coffee though. Nice! So what are we gonna do next? Like find our spot in line and wait for our turn? Yep, pretty much. See if they have any free pens. Oh no! I've heard about those. Turns out they're not free. Weird.

Okay, Ryan, remember to be polite to the teller when it's your turn at the banking window. Speak clearly. Let them know that you would like to open an account. When I opened my account, they had me and my mom go over and sit at a desk with someone to go over all the paperwork. Now, if I know grown-ups and their love of paperwork, and I do...

Then at the end, I am guessing they're going to need you to sign some things and they'll give you copies of all the documents. If you have a safe hiding spot at home where you used to keep your dollars, maybe you can put your banking paperwork there. You will never, ever look at it again. But it's good to have around, I guess.

But the bank is also going to send you a statement every month or two, either in the mail or online. And my banker told me to make sure I'm double checking every month to look at my balance and make sure the amount is what I think it should be. And to check your interest, right? Oh, yeah, that too. Yeah. And hey, Ryan and listeners, you might want to tell the banker your goal for opening your account. Like, are you growing your savings account for college? Are you planning on buying a new bike?

What about you, Ava? What's your goal? I'm saving up for a car and a house. I think it'll take a while to save up enough money for those things, so I'm starting now. Oh, right on. Okay, Ryan, you're up next. Ava and I are going to wait over here. Hello, sir. How can I help you today? Um, uh, I'd like to open an account today, like a big boy. Great. I can help you out in a second. He's doing a great job. Yes, sir.

Yeah, he's barely sweating at all. Feel free to take a treat from the bowl. Um, no thanks. As an adult, lollipops aren't really my thing. But thanks for offering. Did he just turn down the free lollipop? I'm impressed. I have 40 bananas to put into my account. How quickly will this savings account start paying me interest? Huh?

Never mind. Here's 20 bucks I want to put in my account. The rest I'll need to get from under my mattress. I mean, from an undisclosed location soon. You got it. All right, gang. I'm all set. I've got my savings account. Ava, thank you so much for your help. You're welcome, Ryan. I guess I better get back now. Thanks for having me.

Well, looks like we answered our machine's many money questions today. Oh, no, no, no, no, no, no. What's even happening here? Ryan, what's wrong? Is the all-question question-y question machine okay? Now that it's working again, it just won't stop spitting out questions. They're coming so fast. Why don't they print $2 bills anymore? Bridget, what's the answer? Actually, they still do. They're just not as common as other denominations. Next question. Where does the word dollar come from? Uh.

Uh, that's from a silver coin called the Thaler, short from Joachimus Thaler, a bohemian currency from the 1500s. No time to elaborate. What's a recession? We did a whole episode on this, season five, episode two. Why is money green? How much money does the president make? What is rental arbitrage? We definitely don't have time to answer all these in this episode. It's recap time. Okay, I'll just unplug it.

Okay, so we'll save these questions for another show. But what did we learn today, Bridget? Hopefully a lot of great answers to questions from Roman, Cooper, and Perry. Like, I think we learned a whole lot about how to make our savings grow. Now, I know that saving can be hard. We didn't talk about that in this episode, but we have on the show in the past.

Here's the thing. Saving for the future is still important. Remember how we've talked about inflation before, too? With inflation, even if you hold on to your money in a safe spot and you don't spend it like Ryan used to do with the cash under his mattress, it's still important.

It's going to buy you less over time. And so looking for safe tools that help you save more faster than you could on your own, it's a good idea. That's right. And one of the ways we figure out if a tool is safe for us is really learning how it works, how to use it best, and understanding the risk involved. Savings accounts with FDIC insurance can be a pretty safe bet.

And then there are a lot of options out there for you. There's a bank around the corner, your local credit union, or even an online bank. Just depends on what you're looking for. Plus, don't forget to keep a few hundred bucks under your mattress, just in case. Ryan!

That is it for this episode of Million Bazillion. We've got more about savings accounts in the show page for this episode and on our website, marketplace.org slash million. We'd also love to hear from you if this episode inspired you on your savings journey. Did you decide to open up a bank account? What are you saving for? And do you have any other questions for Million Bazillion? We'd love to hear those too.

Special thanks to the smart people who helped us answer this question, including Kelsey Haberman and Blair Bernstein at the American Banking Association Foundation, Marketplace's Justin Ho, and Dominic Martin at Optus Bank in Columbia, South Carolina. Million Bazillion is brought to you by Marketplace from American Public Media. This episode was written and hosted by me, Ryan Perez, and Bridget Bodner.

And we had some extra help voicing this episode from Mitchell Hartman, Jasmine Romero, Jay Sebold, and Becca Weinman. Plus, we got some great tips about banking and compound interest from Yosef and Ava. Jasmine Romero is our editor. Courtney Bergseeker is our producer. Marissa Cabrera is our senior producer. This episode was sound designed by Chris Julin and mixed by

Thank you.

And special thanks to the Ranzetta Family Charitable Fund and NextGen Personal Finance for providing the startup funding for this podcast and continuing to support Marketplace and our work to make younger audiences smarter about the economy. If Million Bazillion is helping your family have important conversations about money, consider making a one-time donation today at marketplace.org slash givemillion. And thanks for your support. Is there a teen in your life who needs a little extra help learning how to manage their finances?

Financially Inclined from Marketplace is a podcast you can trust to help Gen Z get serious about money. I'm the host, Janelia Espinal, and each week I talk to experts about essential and practical personal finance topics, like choosing a college that you can actually afford, finding internship opportunities, and how to start a business while you're still young. Let's make sure the next generation gets these financial lessons sooner than we did.

Listen to Financially Inclined wherever you get your podcasts.