If I open a savings account what does the bank get out of it?
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As some of people have answered they make money on the spread, but they miss an important point. Due to the money system most western nations employ once the bank has your money in its savings account it does not just lend it out once, but multiply times.
For example you put 10 dollars into a saving accounting. The bank then lends out the 10 dollars, to ten different other people. Meaning that with your 10 dollars they have loaned out 100.
The banks can do this because normally everyone doesn’t want there money at the same time. When this does occur it is called a “run” on the bank and is a major economic crisis. Check out the story of Argentina’s story for an example.
Different countries have different rules for how many times the bank can lend out the money.
But that is how the banks make there money, pay you just over inflation for giving it to them, and then lend it out multiply times charging 3% more interest each time.
The bank will take the money you deposit from the savings account, and then has several options:
- Invest the money in the market, where they believe they can make more of a return on the spread between that and the interest they pay you.
- Keep the money on-hand to borrow to other individuals who are withdrawing money.
- Use the saving account money to pay out new loans, which the bank will charge interest on and make a profit.
Sure they do. They pay you a small percentage for the money that you have in savings and they loan it out to someone else for a higher percentage. They make money on the spread.
Of course. They invest or lend out the money you deposit and get a greater return on it than the interest they pay you. That is one of the principle ways a bank turns a profit.