Understanding How Banks Make Their Profit

Banks make millions in profit every year, and you ever wonder how they succeed in doing so? Well, these financial institutions have financial experts whose work is to strategize on how they will make bigger profits. For them, business is not usual until they outshine their competitors with ideas to attract a high traffic to the bank and get more money from them. So, what are these various ways banks make such huge profits?

Different ways how banks make profit

Service fee

Every time a person opens an account, there are various charges one must pay to for maintaining the account. Some charge a monthly fee, while other charge depending on transactions. Also, this fee varies depending on the type of account. However, services like ATM or over the counter withdrawal, salary processing, and statement preparations just to mention but a few, will all have a fee. Banks make a lot of money from this depending on the number of customers they have. No wonder! Banks keep on encouraging people to open accounts with them.

Interest rates on loans

There is no bank loan without an interest rate. Most of them are regulated by the state where the country’s main national bank provides the capping limits. Banks are nowadays going out looking for borrowers so that they can make money through this method. All banks have a loan department which vigorous markets the loans they have. As a matter of fact, this is the second biggest revenue generation option banks have.

Interchange fee

Do you wonder what is interchange? Most people do but if you own a credit card, then you help banks earn money through the interchange. When different banks process the credit card payment, they earn some fee from the merchant with the credit card bank earning more. It still gives banks a reasonable amount of profit at the end of the year particularly now that more people prefer to use a credit card.

Investments

Ever heard of investment banks? Most of them engage in various investment activities to look for more finances. They can trade in securities and engage in real estate among many other investment opportunities. Their investment advisers make very sensitive probabilities as they do not want to risk people’s money. However, most of them make smart ideas and remain profitable out of which their customers benefit in dividends

The above sources of profits for banks are just but a few examples. Banks are ever looking for profitable ventures to try out.