How do Banks Make Money

Banks make money on deposits primarily through lending and investing activities.

When a customer deposits money into their account, banks can use these funds to issue loans to borrowers, charging interest on those loans. The interest earned on loans extended out by banks exceeds the interest paid to depositors, allowing banks to pay its overheads and make a profit that is then used to reinvest or pay out dividends to its shareholders.

Additionally, banks invest a portion of deposits in various financial instruments like government bonds or securities, generating further returns. They may also charge fees for services or maintain a spread between the interest rates they offer on deposits and the rates they charge on loans.

This is known as the multiplier effect of money in simple economics and the cornerstone of capitalism. In lay man’s terms how the rich become richer.

In the follow up article next week, we will talk about Trivium, a partner with Ikigaisg and Antler SG14 graduate who is aiming to provide a more inclusive and transparent banking systems through their BAAS- stay tuned!

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