How Do Banks Make A Profit

Bank Spread

A bank spread is the difference in the interest rates earned or paid on loans and deposits. This is key for banks because banks use the spread to make money.

For example, if the bank’s cost of funds is 3% and they can earn 5% on their loans, they would have a 2% bank spread. If the cost of funds is 5% and they can earn 4% on their loans, they would have a 1% bank spread. A bank is profitable when the bank spread is greater than its cost of funds.

Bank Loan

Some customer will open a savings or checking and deposit fund into the bank. They funds are then used to issue loans for various things such a auto loan.

This loan is not free. The interest rate is an important aspect of what a bank will earns. This taken with the difference in what interest rate they pay out for deposit accounts will play a large role in a bank’s income each year.


Some banks do invest the funds obtain from deposit accounts into investments that will pay a higher rate of return.

Banks are not free to invest in any type of investment but must follow guidelines. This is especially true for accounts that are FDIC-insured.

Bank Fees

This is one we are often more familiar with. Most bank do charge various fees to supplement their income.

There are a number of bank fees, and some banks may even charge you a fee for using an out of network ATM. Below we will cover some of the most common bank fees.

Fees such as ATM fees, international currency conversion fees, and overdraft fees are all imposed by many banks. They can be found in all types of banks, not just large national banks, and they can add up quickly.

Bank Maintenance Fees

Bank maintenance fees are a cost of owning a bank account.

These fees are expected to cost the average American about $335 this year, and about $1,400 over the course of their lifetimes.

A common fee we are familiar with is the monthly maintenance fee. For those who have a checking account, they’re charged a monthly fee that can range from a low of $5 a month to a high of $25 a month. If we loose a debit card some banks will charge a replacement card fee.

Some banks also charge statement fee.

Ways to keep your cost down

Banks do make a lot of money from fees but there are ways we can keep our costs down.

Maintaining account balance over the minimum threshold is one way we can do so.

Maintain a healthy credit score will also help, as banks do offer better terms to customer with higher credit scores.