How Banks Really Make Money (Most Don’t Know)

In the article, we will thoroughly discuss how banks make money. Banks make their money by lending money you deposit to other people.

For example, if you deposit $1,000, a Big Bank pays you a small interest rate to hold that money, then turns around and lends it out at a much higher interest rate for a home loan.

Assuming everyone repays their loans in full, the bank makes a huge profit for simple arbitrage. But here’s how they actually make tons more money.

Traditionally, banks make money from the difference between the interest they pay on deposits and the interest they earn on loans they make. They also make money from customer fees and interest on securities they hold.

How do banks actually make money? truth

FEES, FEES, FEES. In 2017, banks earned more than $34 billion from overdraft fees alone. For example, if you use a debit card and accidentally buy something with more money than you have in your checking account, you’d expect your bank to waive the charge, right? No. They let the transaction go through and then charge you about a $30 overdraft fee. Even worse, banks can charge you multiple overdraft fees in a day, leading to horror stories of over $100 in fees in a single day.

NO MORE OVERDRAFTS!

One overdraft fee wipes out your interest for the entire year and makes you hate your bank even more than you already do. More than half of the people I’ve spoken to in my personal finance negotiations have had at least one overdraft.

One night I was out to dinner and my friend, let’s call her Elizabeth, started asking me questions about overdrafts. They were getting more and more complicated, which weirded me out as I wondered how he knew so much about them.

I asked him a simple question. “How many overdrafts have you had?” He went silent, which of course made me question him more (welcome to my crippled mind). I learned that she incurred over $400 in overdraft fees during her four years of college simply by not paying attention to how much money she had in her account.

The sad part is that he could have negotiated his way out of the first few fees and then set up a system so that it never happened again. To learn more about negotiating bank charges.

Remember that your bank’s fees may be more important than the interest rate it offers. If you have $1,000 and another bank has a 1 percent higher interest rate, that’s a difference of $10 a year. Just one overdraft fee equals three times that amount. Costs matter.

Bank americana sets new fees what it seems is not reason sometimes unexpectedly. Like $5 maintenance fee on savings accounts? It is not similar interest offered even worth it. Not to mention them $12 fee for inspection accounts that don’t do it have $250 deposits or more. I know looks like money small but for some i know people $5 to $12 a a lot of money and can be the difference in payment of bills. It’s always as if with them The lowest leftovers pay at the end that cost”:

— BRIDGET SALLY, 26

Bad banks. What are the worst banks?

This makes me angry. I absolutely hate it when sophisticated financial companies take advantage of people who don’t understand the complexity of these financial products.

And people yet stick with banks that have a proven track record of bad behavior.

I asked some of my readers who chose to stay at such terrible banks

Wells Fargo or Bank of America – why? Their answers:

I have been with Wales Fargo to like 20:00 years. . . so it’s just one of them things where ‘that alwayss: so have I been’ and me don’t think about it.

I have 8 accounts on WF and even though I hate them and what they stand for, the idea of ​​moving those accounts seems like a huge, annoying time.

I have switched banks before but it was a struggle to get the ball rolling. It’s almost like an emotional attachment.

No matter how many times I tell them to switch to a better bank, most of my readers won’t. It `s good! Stay with a bank that is going to open fake accounts in your name, charge you almost extortionate fees, and find a way to screw you over today or five years from now. God

I’ve been with Schwab Thanks for the years to: your suggestion. The service is always great – the few problems I always haves: has been cleaned.

— RICK MCLELLAND, 27

I switched to Schwab YEARS ago based on your recommendation and haven’t looked back.

— RAYHAN ANVAR, 29:

I moved to Schwab on your recommendation. I’ve used them all over the world (including in Pakistan, which is said to be the tallest ATM in the world).

– Saad Gul, 42

WHY HAVEN’T YOU CHANGED YOUR BANK YET?

INVISIBLE MONEY SCRIPTWHAT DOES IT MEAN
“It’s a headache
change banks.”
Honestly, I get it. You’ve set up your account and it’s up and running. Why not just stay? My analysis. You don’t have to change, but if you spend a day or so on it, you’ll ensure that the foundation of your financial system is solid. The banks I recommend are more convenient, cheaper and offer better rewards than the Big Banks. As you grow your income, you’ll know you’re working with the best.
“I don’t know where else to go.”This is irrelevant. Just read the rest of this chapter and I will tell you the best banks.
“This was my first bank.”I’ve only heard this once, but it was so funny I had to include it. Have your first fingerprint love of a lifetime? How about your first garden sock? No? So why are we talking about how you embrace your “first bank ever”? GTFO.

Frequently asked questions about how banks make money

How does a bank make its money?

Banks make their money by lending money you deposit to other people. Other main ways they make money are interest on loans and fees associated with their services.

How does a bank make most of its profits?

Interest income and fees are the main means of making a profit for most commercial banks. In 2017, banks earned more than $34 billion from overdraft fees alone.

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