How does a bank make money?

June 12th, 2009

Once you deposit your money in a bank, it doesn’t just sit in a big vault until you decide to hit the ATM. Your bank uses those funds to offer financial products (such as loans and mortgages) to their customers, for a profit to the bank. Although banks often pay you interest for depositing your money with them, they find ways to earn more with your money than they are paying you. An example of this would be mortgages, where they lend money to a consumer for a relatively higher interest rate.

Banks also make a lot of money on the fees they charge their customers. Examples of these would be: late fees, overdraft fees, ATM fees, interest rates on credit cards, or checking account fees.

The combination of interest rates and fees allows a bank to run profitable businesses while also offering services to its clients.

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