A bank is nothing but a retail store selling financial services to customers. Retail stores profit by selling goods, while banks profit by selling financial services to their clients. While a retail store needs goods to open its doors, a bank can launch its operations with zero cents in its books.
By the way, investors do not use their money to launch their businesses; they borrow money from the same bank that receives your direct deposit every two weeks.
This series discusses money and banks. Most importantly, it explains how banks make money and you, as a depositor, contribute to their wealth. The bottom line is that our deposits provide banks with the capital they need to make loans to few of us and big businesses. Don’t go anywhere; I will tell you all about it.
A bank is nothing but a retail store selling financial services to customers. Retail stores profit by selling goods, while banks profit by selling financial services to their clients. While a retail store needs goods to open its doors, a bank can launch its operations with zero cents in its books.
When you deposit your money in your bank, you lend your money to your bank with zero percent interest. Your bank loans your money to investors at high-interest rates. In return, your bank compensates you with a low-interest rate and keeps the rest for themselves. The difference between the meaningless interest they give you and the significant interest they keep is called the spread. Therefore, banks make money from the interest rate they pay for deposits and the interest rate they receive on the loans they issue to investors or borrowers.
Additionally, you make your bank rich when you purchase goods with your debit or credit card. When you swipe your card, your bank receives a percentage of your total purchase, called an interchange or swipe fee. As a depositor, let me clarify that you do not pay the interchange or the swipe fee; the merchant does. For example, when you purchase groceries at Walmart with your card, Walmart pays your bank a swipe fee that is usually 2.9% of the total purchase plus .30. At one time in our lives, we made our bank richer by paying overdraft, returned checks, or monthly account fees.
When we go to the bank to get a car loan, mortgage, or personal loan, we borrow our own money and the monies of our friends, our children, our neighbors, our coworkers. The bank will take small trunks from several customers’ deposits to put that money together to be able to make the loan. However, when investors get their loan, they borrow our money to buy goods and sell them back to us. Can I say that we buy our own shoes or our own rice with more of our own money twice?
In summary, banks make money in several ways, one of which is by charging interest for taking deposits from their customers and then lending that money to investors at higher interest rates. This is called the spread. Banks also make money from debit cards, overdrafts, and monthly account fees. When customers borrow money from the bank, it is their own, as the bank pools deposits from many customers to form the loan. By depositing money in the bank, customers provide their bank with the capital it needs to make loans and become wealthy.
This series discusses money and banks. Most importantly, it explains how banks make money and you, as a depositor, contribute to their wealth. The bottom line is that our deposits provide banks with the capital they need to make loans to few of us and big businesses. Don’t go anywhere; I will tell you all about it.
A bank is nothing but a retail store selling financial services to customers. Retail stores profit by selling goods, while banks profit by selling financial services to their clients. While a retail store needs goods to open its doors, a bank can launch its operations with zero cents in its books.
When you deposit your money in your bank, you lend your money to your bank with zero percent interest. Your bank loans your money to investors at high-interest rates. In return, your bank compensates you with a low-interest rate and keeps the rest for themselves. The difference between the meaningless interest they give you and the significant interest they keep is called the spread. Therefore, banks make money from the interest rate they pay for deposits and the interest rate they receive on the loans they issue to investors or borrowers.
Additionally, you make your bank rich when you purchase goods with your debit or credit card. When you swipe your card, your bank receives a percentage of your total purchase, called an interchange or swipe fee. As a depositor, let me clarify that you do not pay the interchange or the swipe fee; the merchant does. For example, when you purchase groceries at Walmart with your card, Walmart pays your bank a swipe fee that is usually 2.9% of the total purchase plus .30. At one time in our lives, we made our bank richer by paying overdraft, returned checks, or monthly account fees.
When we go to the bank to get a car loan, mortgage, or personal loan, we borrow our own money and the monies of our friends, our children, our neighbors, our coworkers. The bank will take small trunks from several customers’ deposits to put that money together to be able to make the loan. However, when investors get their loan, they borrow our money to buy goods and sell them back to us. Can I say that we buy our own shoes or our own rice with more of our own money twice?
In summary, banks make money in several ways, one of which is by charging interest for taking deposits from their customers and then lending that money to investors at higher interest rates. This is called the spread. Banks also make money from debit cards, overdrafts, and monthly account fees. When customers borrow money from the bank, it is their own, as the bank pools deposits from many customers to form the loan. By depositing money in the bank, customers provide their bank with the capital it needs to make loans and become wealthy.