Why is interest on saving account why do banks pay interest?

Banks pay interest on savings accounts to incentivize customers to deposit their money, which they can then use for lending and investment purposes. This process helps banks maintain liquidity and profitability, as they earn a higher return on loans than they pay in interest to savers. Additionally, paying interest attracts customers and fosters competition among banks for deposits. Ultimately, interest on savings serves as a reward for customers who choose to save their money with the bank.