Interest-Bearing Accounts

Definition

Interest-bearing accounts are bank accounts or financial instruments that earn interest on deposited funds. These accounts allow individuals or businesses to earn passive income on their savings or investments.

Analogy

Imagine an interest-bearing account as a piggy bank that grows bigger over time. Every time you put money into it (deposit), it earns more coins (interest) which adds up to your total savings.

Related terms

Compound Interest: Compound interest refers to earning interest not only on the initial deposit but also on any previously earned interest.

Savings Account: A savings account is a type of interest-bearing account where individuals can deposit money for future use while earning some interest.

Certificate of Deposit (CD): A CD is another type of interest-bearing account where individuals deposit money for a fixed period at an agreed-upon interest rate.