Eli5: Why do some banks offer increased interest rates if you spend $x per month?

Question

I see some banks use it as an incentive to switch. Is there any financial gain banks see for people actively spending using their accounts?

In: Economics

Answer 1

Yes.

Traditional high interest savings or interest checking requires a significant average daily balance. Last I checked it was like $10,000 at my bank for high interest savings and higher for checking.

But if you use your debit card regularly, the bank makes money off merchant fees which the debit/credit networks charge businesses that accept credit card. So they are basically rebating you some of that money.

Plus if you use it frequently, you’re likely to incur fees like overdraft or insufficient funds, again a way the bank can make money off it.