How Banks Make Money
Find out how banks work and make money. Read this report right now to get the real truth:
Banks are businesses and need to make profit just like any other business. Many people (mostly poor) associate this type of business with something evil. The truth is that we need banks and they need us. Banks need to thrive and if they did not, our economy would be in a really bad state. Yes these are economically challenging times already but things would be a lot worse if the banks suffered.
Here are 5 Ways they make money:
They offer us loans and make money in the form of interest. There is always risk involved and this type of business is no exception. They charge higher interest rates for loans that pose a higher risk and charge lower interest rates on loans that pose less risk. The amount that they charge in interest in most typical cases depends on how many people wanting to borrow and how much that they can afford to lend.
2. Savings Accounts:
- Most banks offer their customers around 4% in interest on the amount of money that they have deposited in their savings accounts. They will in turn offer someone who wants a mortgage at lets say 7% as an example. They make their profit by the difference of (7% – 4%) 3%. These figures are used as examples only and the system in which they use is not so cut and dry. This is just to give you an idea how money is made on savings accounts.
- Some banks will also use your savings to invest in other things like Forex trading, hedge funds and retirement funds management.
- Loan applications fees
- Closing fees
- Account maintenance fees
- Over draft fees
- Late fees
- Bank machine fees
- Paper transaction fees
- Withdrawal fees
- Teller transaction fees
- Insufficient fund fees
4. Investment Opportunities:
Banks also make money by offering customers stocks, bonds and other securities that they can invest their money into.
Banks play an important role in our lives. They lend us money to buy our homes and cars. Can you imagine having to save up money to buy a house? Many of us would not be able to manage this until maybe after retirement.