Money doesn't grow on trees—but it kind of grows on money.

It's called interest.

 

But trees do grow on money.

Basically, when you put your money in the bank, the bank pays you a percentage of that money. For example, if you deposit $100 and the bank pays 1% in interest, you'll eventually see that your balance is $101 (that's $100 + $100x.01). Sure, it's only a dollar, but think of it this way: you got $1 for doing literally nothing. Imagine if you'd put in $1000 or $100,000.

Now we're talking.

Where Interest Comes From

So, uh, why does your bank give you money for sitting on your butt and watching TV?

Okay, let's say your Uncle Bob doesn't like banks: he thinks they (and everyone else on the planet) is out to get him. He decides to keep his money in his underwear drawer. Because the money is just sitting there, it's not making him any interest. Also, it smells bad.

The money in your bank account might not be doing squats or cooking gourmet meals, but it's actually hard at work. The bank is taking the money in your bank account and offering it to people who are looking for a loan.

When someone borrows money from a bank, they're borrowing your money, but they're paying the bank interest. If they pay 6% for the loan, that means the bank will earn $6 on your $100. And because the bank used your money to earn themselves money, they give you some of that money back. Less than they got, but still: they did all the work and you reap the benefits.

Dolla Dolla Bills Y'All

Interest itself is nice, but what you really want to look out for is compound interest—basically, earning interest on your interest.

Let's say you deposit that $100 and earn your one buck in interest. The next month, though, you're not earning interest on $100: you're earning interest on $101, which means you make $1.01 in interest. Each month, you earn a little more. Once those numbers have more zeros in 'em, the compounded interest makes a huge difference.

So tell Uncle Bob to get over his conspiracy theories and start compounding.

Maybe he'll pay you interest on your advice.