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How Do Banks Make Money?

According to the RBI bank credit stood at 116.8 lakh crore rupees on december 31 2021 as you can see banking is one of the oldest and biggest industries this industry accounts for roughly 20 to 25 percent of the global economy but have you ever wondered how banks actually make money.

Today let's take a look at how they make money as well as earn a lot of profit the industry was pioneered way back in 1770 with the bank of hindustan which was later dismantled an interesting story though is that the bank of calcutta started in 1806 and was later renamed as the bank of bengal this bank in 1921 merged with the bank of bombay and the bank of madras to form the imperial bank of india.

This bank is still in existence today it was renamed to any guesses, the imperial bank of india is now known as the state bank of india yes we associate banks with money and money with banks but have you what about their inter association how do banks make money now we are not just talking about the money that comes from people repaying their loans they offer free 18 services referral gifts and a lot of other things that a lot of expenditure so let's see how they make enough money to cover this expense and make a ton of profit as well.

The first way is obviously as we mentioned interest from loans and debts of course the bank pays you money for depositing money with them it could be in your savings account or maybe in a fixed deposit or recurring deposit but when you deposit money with them they lend this money out to people seeking it and charge a higher interest for instance if you are earning five percent a year from your fixed deposit the bank will lend that money out let's say a home loan and earn seven to ten percent a year.

Another major income source for banks is their banking fees for instance there's the account maintenance fees secondly if you're not using your account at all there is a fee for that as well, inactive accounts are charged a certain amount a simple way to avoid this is to make a couple of transactions every month or two.

It could be as simple as withdrawing some money or depositing some and then of course the insufficient funds fee most banks have a minimum balance on your account if you fail to maintain that you have to pay a small penalty similarly if you try and spend more than you have you will be charged and overdraft free as well now additionally if you have a savings account and you exceed the number of transactions allowed per month you have to pay yet another penalty and with that there's a fee for exceeding the number of ATM withdrawals as well if you pay using your debit card or credit card you have to pay a small transactional fee it seems like a small amount but trust me it adds up.

Significantly missing the dates of course there's a penalty for that if you miss a payment date for your credit card or your loan repayment you have to pay the price depending upon the bank's additional services there could be several more income sources for them the banking industry is arguably one of the most lucrative industries in the world since the power of money resides with them the industry is influential and essentially leads the economy.

#banks #finance #bankingsystem

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