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How do banks make money?

FinanceLesson on requestFree to read

Quick answer

Banks mainly make money on the gap between the interest they pay savers and the higher interest they charge borrowers. They also earn from fees on accounts, cards, and services, and from investing. Lending out deposits is the core of their business.

Step by step

  1. They pay low interest to savers, charge higher to borrowers.
  2. That gap (the 'spread') is a core source of profit.
  3. They also earn fees on accounts, cards, and services.
  4. They lend out most deposits rather than storing them.

People also ask

How do banks make money?
Mostly from the difference between interest paid to savers and the higher interest charged to borrowers, plus fees.
Do banks keep all my deposited money?
No — they lend most of it out, keeping only a fraction on hand, which is how they earn interest.
What is the interest rate spread?
The gap between the interest a bank earns on loans and what it pays on deposits — a key profit source.