Let's correct this statement a little bit: For a credit card, you are not being denied access to your money, but rather your bank's money. A credit card is not "your money." Many people make this incorrect assumption, and that's how a lot of them end up deep in debt.
If it's a debit card, then yes, access to your money is withheld. However, for 7 days, you are holding a $700 piece of equipment that is not owned by you, but rather is T-Mobile's property. If you break it, lose it, or choose not to return it, then T-Mobile is out the cost of that iPhone, which they must then recover from you. Putting a $700 authorization hold ensures that they can in fact, recover their costs if they don't get back their property.
(And actually, T-Mobile will work with you if the phone gets broken: you only have to pay $100, which is even cheaper than if you broke your own iPhone and had to pay Apple to fix it).
If can't temporarily deal with $700 in your bank account being tied up while you borrow a $700 phone, then you should put up a credit card instead. If you still can't deal with that credit tie-up, or don't have a credit card to secure that loan, then maybe you shouldn't be borrowing a $700 phone.
Banks do not incur interest on authorization holds. As for actual purchases and money kept in an account: yes, that's how money is created and how banks stay in business. It's been that way for centuries now. While some banks are guilty of being abusive in their practices, railing against banks for charging any interest for legitimate loans is a bit absurd.
