How do banks make money? Where do they get money from to give us interest?

Question

How do banks make money? Where do they get money from to give us interest?

Answer 1

There are several ways wherein banks make money, two major ways are lending loans to businesses and individuals, including credit cardholders; and, through investments.

Business and personal loans (like housing, car, equipment, and capital loans) are usually charged 12% to 20% depending on the type of loan, the terms and condition, and the credit rating of the borrower.  Overdue account balance on credit cards in my country usually carry between 1% to 1.75% compounded interest (meaning add on interest for unpaid balances) per month (that translates to about 12% to 21% per annum or year or even higher than 36% if remained fully unpaid).

The second highest revenue maker for banks are investments.  Usually, these are excess deposits by customers that carry long-term maturity like time deposits.  Since these are not volatile or subject to instant withdrawals, the banks invests these in government bonds or treasury bills that bear equivalent maturity terms.  This way they just re-discount (take their commissions) the proceeds of their purchase and a portion goes into paying the interest on time deposits.

For longer-term deposits (5 to 10 year deposits with guaranteed interest rates), banks prefer investments in stocks of blue-chip companies; those that regularly declare dividends either in stock options or, stock or cash dividends.  This ensures that the bank gets regular and immediate income for which they can re-invest.

To reinvest is to invest again proceeds from monthly incomes of paid-up loans and investments that are not demanded/withdrawn by the depositor.  The banks themselves, or by policy of the state's Central Bank, usually maintain a percentage of its deposits in trust (mainly with their Central Bank) in case of heavy withdrawal so that the banks will have sufficient liquid (cash) funds to meet withdrawal demands.

Answer 2

they earn money by lending money to banks and people, they get the money from the interest from these loans.

Answer 3

by investing your money in other businesses, and by raising their loan interest rates to cover the losses. Also by charging you to handle you own money for you, ATM charges, monthly fees. That's why allot of banks are in so much trouble right now, unfair loan practices, and high interest loans.

Answer 4

They grow money on trees to pay you interest. Are you interested please visit any banks of the river in the woods.

Answer 5

A bank might give you 5% per year on the money you have on deposit with them.  They lend your money at a much higher rate to other customers. That's where their profits come from.

Answer 6

they make money buy putting our money in high interest accounts overseas and getting big interest off it!

its called off shore banking! they do it all the time! xx

Answer 7

Loans, shunting money about at night, charges....

Answer 8

from your money,!!

Answer 9

loans and you have to pay a fee each month to keep the bank account, and credit cards. so interest basically

Answer 10

The lend it to businesses and individuals on loans which makes them more interest than they pay out.  The also invest it on the stock market.

Answer 11

By providing all kinds of banking services and giving out loans and charge their customers service charges and interests. They get their money from their shareholders and from their customers who open accounts with them for banking services and depositors who want to save and earn interest.