Why Do Banks Make Money From Your Deposits?

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Full transcript

When you deposit money in a bank, you might wonder — how does the bank actually profit from that? Banks don't just hold your cash. They lend most of it out to other people as loans. Borrowers pay the bank back with interest — that's extra money on top of what they borrowed. The bank pays you a small interest rate on your savings — but charges borrowers a much higher rate. The difference between those two rates is the bank's profit — called the interest rate spread. So your money works for the bank while it sits there — and the bank pays you just enough to keep it.

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