How Banks Earn Money

Banks take in money from depositors, both individuals and businesses.  Sometimes they even pay a small interest (payment for the use of the money) to their depositors.  They then combine the money and lend it out to other people or companies which need to borrow money.  This could be for cars, houses, college, or a local business that would like to expand.  When the bank loans money, it in turn charges the loan customer interest (see Simple & Compound Interest & The Rule Of 72).  Trust me; this is at a far higher rate than the interest they pay you for holding on to your money!  Banks are in the business to make money too.  For example:  A bank might pay you 2% interest when you deposit your money into a savings account.  They will then make a loan to your parents to buy a car at 5% interest.  Banks also earn fees or commission for other types of services they provide.