Savers are paid interest to compensate them for the fact that money today is less valuable than money in the future. Here's why:
1. Time Value of Money: When savers deposit their money in a savings account or invest it, they are essentially delaying the use of that money. Due to the concept of time value of money, a dollar received today is worth more than a dollar received in the future. This is because money can earn interest or be invested to generate returns over time.
2. Compensation for Delayed Consumption: By choosing to save money instead of spending it immediately, savers are giving up the opportunity to use that money for consumption or other purposes in the present. Therefore, they are compensated with interest as a reward for deferring their consumption.
3. Incentive for Saving: Offering interest incentivizes people to save money rather than spend it all. It encourages individuals to deposit their funds in banks or other financial institutions, which in turn allows these institutions to lend money to borrowers for various purposes such as starting a business or buying a house.
Overall, paying interest to savers serves as a mechanism to reward them for saving, compensate them for the time value of money, and encourage responsible financial behavior.
