Tiered-Rate Account
Categories: Credit
Most bank accounts pay the same interest rate no matter how much money is in the account. You sign up for an account with a 1% rate. You start with a $100 deposit. You earn 1% interest on that hundred bucks. Then you win the lottery, and get one of those big novelty checks for $50 million. Not knowing what else to do with the money, you stick it in your starter bank account. You're still just getting that 1%. Whether $100 or $50 million, the rate remains the same on every dollar in the account.
Obviously, the dollar-amount of interest paid is much higher when the amounts get higer (1% of $50 million is significantly higher than 1% of $100). However, the rate stays the same.
That situation represents a normal bank account. The tiered rate account works differently. Instead of carrying a flat rate no matter how much money you deposit, the rates for the tiered account increase as the amount of money goes up. The bank creates an incentive to hold a higher balance, giving the depositor a higher rate when they keep more cash in the account.
