How do Banks earn profit?

Question

How does bank earn profits/money if they actually give us money in interest if we have a balance with them?

BTW, is it free to make an account?

wait...but like you can invest your money any time right?

upz i meant withdraw

Answer 1

When banks give out loans to their clients the bank gets interest back, usually a lot more interest than what they pay out to their account holders. Banks also use the money that people put in the bank to invest in the economy, usually the stock market and other corporate endeavors. That is why banks will be willing to give you higher interest if you take out a CD account, or other similar account, where your money is "locked" for a certain period of time (usually a few years) meaning that you can't withdraw it so that the bank can invest it to make money of their own, and in return pay you back more interest than a savings account would earn when it matures.

This is certainly not all banks do to earn profit, but it is the basic premise on which they make their money.

Answer 2

Traditionally, a bank generates profits from transaction fees on financial services and from the interest it charges for lending for business community, credit cards, selling insurance products, investment products or stock broking , hire purchase products, home loans, etc. the interest charged to business overdraft is very high. They are able to make much more profit even after paying interest for the funds raised from the public deposits, meeting all establishment costs etc. Most of the bank business is secured fully and the risk of their lending is very minimam.

This is the fundamental policy of banking and they earn profit in the process. -

Answer 3

The real simple explanation for how a bank makes money is: 1) The bank accepts deposits via savings accounts, checking accounts, etc. 2) The bank pays interest on these accounts to entice folks to save. 3) The bank then turns around and takes the money people invest in these accounts and lends it out to folks who want mortgages, car loans, etc. 4) The bank charges interest on these loans. The interest is high enough to cover the cost of paying interest on the underlying accounts, plus overhead (salaries, etc.), plus make a profit. Included in the overhead is the risk factor of people not paying back the loan.

Answer 4

They charge much more interest on the loans they make than they pay out in interest. They also charge for checking accounts, ATM fees, loan processing fees, safe deposit box fees, they even make a profit when they sell you your checks for your checking account.That's just the tip of the iceberg.

Answer 5

This may or may not surprise, but due to heavy losses banks do not necessarily make huge profits from checking or savings accounts, nor from credit cards. As a bank president I can assure you banks make huge profits from personal loans.

Answer 6

Bankers are legal gangsters authorised by the Govt to swindle each and every cents out of their account holders. Be wise. Close all accounts with your banks that are not necessary. The more account holders, the more money they can swindle.

Answer 7

bounce a check one time, or over draw your account... you'll see real quick how they make there money.

One time I had a really bad accounting error and it ended up costing me $300 buck... you guested it, the bank got every penny of it.
So now you gotta think if 100 people make the same mistake that i did... The bank just made a butt load of cash. Oh and yes this was on a free account.

Answer 8

with the money people give them they buy houses and all kinds of other stuff and sell it and make a killing.Since everone will never want to get all there money out at the same time they can do this

Answer 9

They loan out your money to someone else at a higher interest rate.

Answer 10

the difference in interest rates given and received.

Also, the charges of monthly fees, excess transactions, application fees, over the counter fees...exchange fees...there's a lot of fees which lead to lots of profit.