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How do banks make money

How do banks make money is a very interesting question because on the face of it, they seem to take just a few small charges on things like overdrafts and loans. When you dig a little deeper you find that there are plenty of revenue opportunities for banks and the biggest high street lenders take every chance offered to them to make cash from their customers.
    getty - Christopher Furlong

Business

Banks are a business and like any business they have plenty of different ways of making money. The saying, you need money to make money was probably coined by a banker because banks tend to make a lot of cash from the cash they hold for us. Basically banks sell money. They sell it as loans, certificates of deposit and through other financial products. They make revenue from interest charged on loans and pay out very little to their account holders in interest earned on savings.

Income

The bank’s main source of income is the money you deposit into your branch when you get paid. These deposits are normally very short term because most of us take out the money we deposit from our wages pretty soon after it’s earned. The fact that most of us take our money out or spend it before it’s been with the bank for any length of time means we don’t earn a lot from interest but it also means that banks don’t have a lot of time to make money from our current accounts. With savings accounts, banks get a better chance to make money from your money which is why they can afford to pay a slightly higher interest rate.

Bank charges

Bank charges are another form of revenue that banks have. They make money whenever we go overdrawn, whenever a cheque bounces and whenever they transact foreign payments.

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