How do banks make money from funds that you deposit in savings
Banks make money from funds deposited in savings accounts through several methods, including:
1. Interest: Banks pay account holders interest on the funds deposited in their savings accounts. The interest rate paid on savings accounts is lower than the interest rate charged on loans, allowing banks to profit from the difference, known as the spread.
2. Fees: Banks may charge account holders fees for services such as ATM withdrawals, account maintenance, and overdrafts. These fees can generate additional revenue for the bank.
3. Investment: Banks use the funds deposited in savings accounts to invest in various financial instruments, such as loans, securities, and other assets. They earn a return on these investments, which contributes to their overall profitability.
4. Loan interest: Banks use the funds deposited in savings accounts to offer loans to customers, such as mortgages, personal loans, and business loans. The interest charged on these loans generates revenue for the bank.
5. Other banking services: Banks may also offer other financial products and services to account holders, such as credit cards, wealth management, insurance, and brokerage services. These additional services can generate fees and commissions for the bank.