How Do Banks Make Money?

 

Have you ever thought that why your checking account is always free, or why your bank gives you small amounts of interest every once in a while? It almost feels like you’re the one making money, right? But its wrong. Lets see how does a bank makes money.

There are many ways but we will be discussing about the two common and ways, that are :

•     Interchange
•     Fees

Here it is the brief introduction about the two of them.

INTERCHANGE

 

 

Whenever you use a credit or debit card to buy something at a store, that store usually has to pay what’s called an interchange fee. Most of the interchange fee goes to your bank, and some goes to the store’s bank. This interchange fee covers the cost of handling credit and debit transactions.

Interchange fee rates are set by credit card companies. Among other factors, interchange fee rates can vary by provider, but the way in which they are structured is that it’s a percentage of the transactions plus a flat rate.

For example, if the interchange rate is 2.00% + $0.10, and someone bought a $100 item, the total interchange fee the store would pay would be $2.10. The store would get $97.90 of the actual purchase and the $2.10 interchange fee goes to the bank that provided you the credit card.

When you go into a store or restaurant and see that there is a card minimum, it’s most likely because of the interchange fee. The flat rate portions of the interchange fee for smaller transactions can really add up for businesses.

In the last few years, businesses have been fighting to lower the interchange fee rates and have had some success with capping interchange fees on debit card purchases.

FEES

 

 

Banks make many small money banks from which they provide money to the borrowers with interest and earn some amount of margin.
 

 Account fees:

This is the fees that the bank charges you for the maintaining purpose also adds a small amount of money to there margin.

 ATM fees.:

Sometimes, when you are urgent. You are not able to go the the ATM of your bank so you go the the ATM of another bank to take your money, that also costs you some money which again adds in the margin of banks commission.

Penalty charges.:

Banks like to charge you penalties. It sucks for the customer but it gives a large amount of money to the bank. If you have been charged some penalty fees, then comment below the reason for which you needed to give a penalty fee to the bank.

Commissions:

Banks also gives money to the investors and gets a huge amount of commission from it. If the person failed to give the commission, banks takes strict legal action against him/her.
    

Application fees:

Whenever a person applies to take the loan, he needs to pay the loan back with some interest. So of a person takes a home loan or any other kind of loan, he needs to give some money extra to the bank. The bigger the loan, the bigger profit the bank will earn.

These are some of the ways how does a bank earns and make money. If you want to know more methods and other it deeply, let us know in the comment. If you liked the article, feel free to share with your family and friends.

GOODBYE. 

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