Banks mainly earn money by lending at higher interest rates than they pay on deposits — the gap is called the net interest margin. They also earn fees from accounts, cards, payments and other services.
The interest spread
A bank might pay savers a modest rate on deposits while charging borrowers more on mortgages, business loans and credit cards.
The difference, after losses on loans that aren’t repaid, is a core source of profit.
Fees and services
Account fees, overdraft charges, card interchange fees, wealth management and payment services all add revenue.
For some banks, these fees are as important as lending.
Managing risk
Because deposits can be withdrawn while loans last years, banks must manage liquidity carefully.
Regulators require banks to hold capital and liquid assets to absorb losses and meet withdrawals.
Fees are where banks differ most. Compare account fees before rates — they can wipe out any interest you earn.
Frequently asked questions
Why do savings rates lag behind loan rates?
The gap is the bank’s margin, which covers costs, losses and profit.
Do banks lend out all deposits?
No. They keep a portion as reserves and liquid assets to meet withdrawals and regulations.
This guide explains a general concept; it isn’t a recommendation to buy, sell or borrow. For decisions about your own money, consider speaking with a licensed financial professional.
