How do banks make money?

Banks can offer such great deals that it may seem like banks are losing money by having you as a member.

 

So how do banks make money?

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When choosing your banking institution as a customer, you often weigh the benefits such as percentage earned in a savings account, location of the bank, and rewards that the bank can offer you as a customer. With all these benefits, it might seem like the bank is actually paying you to be their customer. 

A common misconception about banks is that they will keep all the money you deposit stored inside them. This comes from the traditional idea of large bank vaults filled with gold bars and bags of money. While this was once historically true, modern-day banks are far more advanced. The primary ways banks make money in the 21st century are through re-investing your money or loaning it out to customers.

Reinvesting your money

One of the biggest ways banks make money is by re-investing your cash and deposits. After you complete your check or cash deposit at an ATM or virtually from your phone, the bank immediately takes that money and invests it in various financial stocks and bonds. These stocks and bonds are then held by the bank and your amount of money is displayed on your account as if it is held at the bank. What occurs in the background is banks keep cash amounts available for withdrawal but these amounts are often much smaller than the displayed value of money from the users that are part of that bank.

This is why you may need to provide reasons for making a large withdrawal. All of these measures are put in place to protect the consumer from fraud, and to keep the banks from worrying about running out of money.

Loans to customers

Have you ever found yourself ready to make a big choice in your life, such as buying a house, a car, or starting a business? Typically, your first plan of action would be to identify what you want to purchase and how much it costs, then checking if you have enough money to pay for it. If it’s a large enough purchase, you may want to apply for a loan from your local bank. This loan will come with an interest rate you will also have to repay. This is how most banks make their money.

“But where do they get the money to give out loans from?” you may be asking yourself. These funds are generated by consumers of the bank that deposit their money. So banks not only re-invest your money in the stock and bonds market but also use your money to give out to other people and make money from the interest rates on those loans.

 

So does sync. make money by being a lender like a traditional bank? The simple answer to that is no. The way sync. makes money is by taking a small fee during the transaction or exchange of money from our platform. Don’t worry: this fee isn’t taken from the customer. It is gained during the exchange or transaction. This means that while we’re making money on exchanges, you will not see a transaction fee for it on your end. Find out more about how challenger banks make money.

"Most people use a bank to store their money, but not everyone knows how they work."
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