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Aefyns t1_jabjtz0 wrote

You deposit money.

They loan your money out.

The interest is their profit.

The government insures banks via FDIC. Lots of regulations on how to do all this but essentially this is the gist.

TL;DR Banks loan out your money to other people. Other people pay the bank to use your money.

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FunnyHighway9575 t1_jabk3vr wrote

They loan your money to other people and charge interest to get the loan. So if you keep your money in a savings account, the bank gives you 0.01% interest but can turn around and give your money to many other people and charge let's say 5% interest or more to the ones receiving it.

They also charge fees like maintenance fees, annual fees, membership fees, etc

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zmz2 t1_jabmgo2 wrote

My checking account gives me 4% so your numbers are out of date. I pay no maintenance fees, annual fees, or membership fees. Maybe you just have a shitty bank

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segelnhoch3 t1_jabxb78 wrote

These rates change over the years, but interest rates change with them. So if your bank gives 4% interest on savings, their loans probably have an interest >6-7%. Still, the 0,01% are a rather extreme example.

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MrQ01 t1_jac1txy wrote

What bank is this, if you don't mind me asking?

4% does seem very high for a checkin account

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tacetabbad0n t1_jac0hfz wrote

By the bankers axiom.

Buy at 2 Lend at 3 Go home at 4.

When you deposit money in a bank it isn't really in your account. The bank uses the money people have deposited in invests in things, from giving out personal/business loans and mortgages to buying stocks and shares or even buying and selling debt. The profit they make doing this covers the bank's operating cost and interest on your account.

Essentially when you put your money in a bank you are in actuality loaning the bank your money.

This is why when banks collapse people loose their savings. The bank gambled with your money and lost it all.

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blipsman t1_jad17n6 wrote

Banks pay you a small amount of interest for putting money into savings, CDs, etc. while charging customers a higher rate of interest to customers who borrow for home mortgages, car loans, credit cards, business loans. That spread is their income. So you put money into your savings account and get 2% interest on it, and they then lend at 6% for a mortgage, or charge 20% on credit card balances.

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