That's how every bank works?

It’s how literally every bank has worked for all of time. They have to cover interest you are payed for keeping your money at the bank. Where do you think that money comes from? They take the money people deposit, and invest it, either through loans to others, or through other investment vehicles, like treasury bonds in this case. When you put your money in a bank, you are giving them permission to reinvest it somehow. If you just want your money to sit there, your only option is to start stuffing wads of bills under your mattress.