Open Vault at a Bank

How Do Banks Make Money

Our banks play a pivotal role in our everyday lives, allowing us to open accounts, holding our deposits, facilitating our withdrawals, granting various loans, transferring cash and enabling our financial transactions. Looking deeper, banks make their money through the phrase “ A penny lent is a penny received” and through charges and fees. Respectfully, “ A penny lent is a penny received” refers to customer deposits, packaging and distribution of loans and credit cards while charges and fees refers to account fees, late fees and credit card fees.

 

A penny received is a penny lent:

 

  • Deposits from customers (individuals and businesses) provide banks with the money they need to make loans.

  • The packaging and distribution of loans to clients is how commercial banks generate money. Banks make interest on the cash they distribute through offering loans such as mortgages, vehicle loans, business loans, and personal loans. 

  • Credit cards, like loans, allow banks to generate interest on basically revolving credit on customers.

 

Charges and Fees

Service and maintenance fees are another major source of revenue for your banks. These costs can take a variety of forms, including:

  • Account fees (monthly maintenance fees, minimum balance fees, overdraft fees, or non-sufficient funds penalties), and * Safe deposit box fees.
  • Late Costs – Many of the aforementioned loan packages include conditional fees if the organization receiving the loan fails to meet the contract’s conditions.
  • Credit Card Penalties — Missed or late payments on credit cards usually result in considerably higher late fees.

These are just a few of the ways your commercial banks profit on your money and spending patterns.

One simple take away from this, don’t give them more than they already get from you- so PAY YOUR LOANS AND CREDIT CARDS ON TIME. 

To learn more about how Banks make money, visit: https://www.investopedia.com/terms/c/commercialbank.asp 

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