How Do Banks Make Money in 2021?

What Exactly Is A Bank?

Banks are financial institutions that are legally allowed to receive money from depositors  (customers like you and me) and use that money to issue loans to other customers.

Different Types Of Banks

Retail Banks

Commercial Banks

Central Banks

How Do Banks Make Money?

Banks make money from three primary income structures.  They make money from net interest margins, fees, and interchange.

Defining Net Interest Margin

The above-stated ways a bank makes money and pays customers for the use of their money is known as net interest margin.

Annual Percentage Rates Are Powerful Income Sources

This system works perfectly if the financial economy is constantly rotating and changing – meaning some people are taking out loans and others are depositing funds.

Defining Interchange

When people use their credit or debit cards to purchase at a retail store, the store is usually responsible for paying a small fee associated with the transaction. This small fee is referred to as an interchange fee.