Banks are in the business of making money and they do it quite well. Money is the commodity which they use for profit by providing services at a cost. If you are a consumer and want your money to really work for you the bank is the worst possible place to keep it. Contrary to popular belief the bank is not your friend. You may have to enter into a marriage of convenience as far as your money is concerned. Your bank is not in business to make you rich. Your bank uses the money which you have deposited to make more while they charge you for keeping it. They also charge you when you tell them what you want to do with it.
Bank Products Banks offer services as conveniences. We in essence, purchase these conveniences when we apply them to our money. Examples of bank conveniences are loans, checking accounts, saving accounts, money orders, cashier’s checks, credit or debit cards, and ATM cards. Banks make money from each of these services even though they are simply doing what we as customers want them to do with our own money.
Bank Loans Loan institutions generally make a lot of money. Banks use the monies which their customers have deposited to fund loans to other customers at various interest rates. This is probably the greatest money making technique that the banks utilize. They typically offer very low interest rates to induce customers to deposit it, and will charge dramatically larger rates to the customers who seek to borrow your money. They are very adept at determining interest rates and will generally make a lot of money with long term loans such as mortgages. The customer who takes out a mortgage may typically pay back three hundred per cent more than the amount of money borrowed in the initial loan. This does not take late fees, closing costs, and extra fees charged with payment deferrals into account. Many banks will use prepayment penalties to prevent you from avoiding paying extra interest by paying the loan off early.
Checking and Savings Accounts Banks more often charge monthly fees when you open a checking or savings account with them in addition to the interest which they are making with your money. You actually pay them to use your money for their purposes. Many banks are beginning to offer free checking and savings accounts in order to win more customers, but the truth of the matter is that they generally make so much from loans that they can easily allow free checking accounts. Extra charges are masked as statement fees, overdraft fees, bounced check charges, and service fees. Most banks will charge fees for money orders (even if you take the money from your own account), cashier’s checks and money transfers. All of these services cost them little to nothing to perform.
ATM and Credit Cards More people use ATM cards now than ever because of their convenience. This makes them an excellent vehicle for banks to use to make more money from you. They will you charge additional fees to use your card to make transactions such as withdrawals or transfers. An efficient bank will make a generous profit from its customer base. Charges are cloaked by making them seem as innocuous as possible.