Jump to content
Sign in to follow this  
stone bridge

How Do Banks Make Money ?

Recommended Posts

What if you are surprised by your little ones at home with the question ‘how do banks make money?’ What would be your answer?


One fact is certain, banks are after all businesses and as businesses go, they have expenses to cover and need funds for their effective functioning. This rules out the idea of banks not making money away. 

The first thing you need to know is that the bank is like a shop that buys and sells money in various forms like loans, deposits, certificates of deposit and many other types of financial products. 

The bank’s fundamental business is borrowing and lending money and they earn from the interest that they derive from independent customers. The interest at which they lend money is always higher than what they borrow money at. 

This difference in interest rate is the main profit earned by commercial banks. The money they lend out are essentially from other customers who deposit theirs in banks as longterm saves. This means that the rate of interest that a bank charges is entirely dependent on the demand and supply for a particular amount, the number of people who are ready to borrow the amount and the exact amount that the bank can spare as loan. 

Banks also charge customers a certain amount as charges or fees for taking care of the bank accounts of individual customers. Other charges levied by the bank like charges levied for overdraft facilities or cheque facilities and the likes also add to their income. 

Upcoming companies often seek the advice from established financial institutions like investment banks for effective execution of their plans. The bank provides crucial advice in terms of what rate the issue should be priced, the total number of shares issued, conducts the due diligence of the interested company and many such associated services. And of course, all of this is for a price, this is the advisory fee that the bank charges in return for its services and the time it spends to finalize the deal for the specific company.

Banks, especially the investment banks are active traders in the equity, forex and commodity markets. Banks with people's funds invest in various securities trading as well as open positions in the debt market as well. 

It is easy to see that some individuals are scared to keep their precious jewellery, important documents at home. They are nervous of theft, and the bank comes to the aid of all such customers.

They have vaults of various sizes and dimension to suit the needs of many different types of customers who require these vault services. The bank charges annual fees for the maintenance, upkeep and also monthly rental in return for these services. While customers are happy that their precious documents and jewelry are in safe hands, the banks use this opportunity to maximise it's profit base.

Also, when an individual or a company defaults on a specific loan, the bank impounds on the collateral that was given in exchange of the loan amount and puts it up for sale. These are wide range of products ranging from houses, cars and other personal belongings including jewellery. 

Auctioning these properties is an easy way for the bank to recover the defaulted loan amount as well as let go of the collateral that it had taken over. 

There are many other services that a bank caters to and levies charges on like teller services, checking statements and account balance, accessing the bank account from any ATM which might not belong to the parent bank and the like. 

In conclusion, as all businesses are, banks rakes in significant sum by meer numbers of customers. Banks certainly makes sure their business of trading money becomes a means of making money!

Share this post

Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

Sign in to follow this  

  • Similar Content

    • By stone bridge

      Nigerian music star, Reekado Banks is already making plans to leave the label that brought him into the spotlight.
      During a recent interview with Soundcity Radio, Reeky revealed that he has already launched his own label named TOT Empire and intends to start working on it fully once his current contract with Mavin expires. He has signed a new artist named Marv who will be dropping a new video titled ‘Abeg’ under TOT Empire.
        Reekado was part of the famous heroic trio signed by Mavin records boss, Don Jazzy following the exit of his lead male vocalist, Wande Coal which left a dent in the label when he decided to part ways and focus on his own label. It sure looks like Don Jazzy will be facing another set back as Reekado has proven himself as one of the best amongst his peers.
    • By stone bridge

      For actress Amanda Ebeye, money answereth all things.

      In a recent interview with Sunnews, when asked if the sex is bad but he is a good man and treats you like a queen, will you stay in the relationship or marriage, the single mother of one said: “As long as he has lots of money, why not? Who has good sex helped? Who cares when the shops are full of the right tools?”
    • By stone bridge

      A young man based in Ijebu Ode area of Ogun state has been subjected to barking like a dog, once every month.
      It appears it is not too much of a sacrifice for this yet to be identified young man as against the idea of working for a means of livelihood.
        The young man has been exposed and mocked by his friends in a video having a regular ‘moment’.
      One of his friends who shared the video explained further saying this is not the first time a similar occurrence took control of his friend.
      He added that the same young man was having fun in a popular nightclub; ‘Club royal’ when the episode overtook the victim and his friends had to lock him up in a car pending when he would come around.
      It was also gathered that this embarrassing conditions for money ritual is a trend in that part of Western Nigeria.

      Watch Video Below
    • By stone bridge

      Pull up crooner, Reekado Banks has been confronted about his relationship with Lil Kesh, former YBNL artist now boss of YAGI records. The question was posed to the singer by Awazi during a radio interview on Soundcity 98.5 FM, Lagos.
      Last year, Reeky ranted at his ‘Thank You’ concert in Ibadan which was directed at Lil Kesh. Awazi asked him what occasioned the outburst.
      Reekado said he was stilled pained about the 2015 Headies Awards incident. He was asked again what was his current relationship status with Lil Kesh, he said he ‘wasn’t exactly friends with Lil Kesh neither were they, enemies’.
        Reekado Banks spilled a little secret about his next music project, he took the chance to announce he would be releasing a mixtape soon.
    • By stone bridge

      In an interview with Punch, Nollywood actress, Rosaline Meurer, who was accused of being the cause of marital issues between Tonto Dikeh and her husband, Olakunle Churchill, has said that Tonto Dikeh’s marriage crises was a blessing to her.
        Tonto Dikeh/Olakunle Churchill
      The stones that were thrown at me with intentions to bring me down last year when I was used to cover up a marriage crisis turned around to be in my favor with God on my side. I got more jobs and more money. At first, I was bothered; then I realized that so many other innocent people were used and lied on as well in the same situation. Out of respect for the head of the family and because I and my family have come a long way with him even before I relocated to Nigeria, I decided to let go. I don’t have any relationship with Tonto Dikeh; I only know her to be Mr. Churchill’s ex-wife.
    • By stone bridge

      Who hasn’t heard about Western Union? This company has been around for decades all across the globe. It is present in over 200 countries and territories across the planet offering its services to millions of users. Learn how to receive money from Western Union in Nigeria, since this popular money transfer service is available to the citizens of the most populated African country.
        Citizens of Nigeria can enjoy money transfer services offered by Western Union (WU) in any of its many locations. By the way, the number of such points exceeds 2,700 across the country.
      It is possible to use Western Union tracking number to know when exactly your funds become available for pick up. Then you can enjoy the money transfer service.
      Here is how you can get your WU money in Nigeria:
      Step 1. Ask the sender to provide you with the Western Union tracking number. Step 2. Track the money transfer and wait until you see the message that you can pick it up. Step 3. Find a location in your city where you can get your money. You can visit this page https://locations.westernunion.com/ng/ and make a selection. Step 4. Visit the agent’s location and you will be asked to fill out a special form to get your money. You will have to enter the following information: The name of the person who sent you money via WU The country where money was transferred from MTCN along with secret Question – Answer (if you are asked to) Step 5. You have to provide your ID card along with the filled out form (if you are asked to). Step 6. Western Union agent should collect the form, make sure you are who you are (by checking the ID card) and handle you the finances. GETTING FINANCES ON SMARTPHONE
      Here is how you can receive money sent via Western Union directly on your handset:
      You have to create a mobile wallet to get money directly on your phone. Your money sender should select the option ‘receiver’s mobile wallet.’ Otherwise, you will not be able to get your finances using this method. Besides, he or she has to use your phone number and Nigeria’s zip code. The mobile wallet service you are using will let you know when your finances become available. Once you have gotten WU money on your handset (mobile device) you can withdraw cash, use mobile money to purchase products, buy airtime and pay your bills. WESTERN UNION LIMITS IN NIGERIA
      You can transfer your funds using WU only within the country if you are located in Nigeria. Foreigners are allowed sending you money from different countries to Nigeria if they provide you with your MTCN code (this is the special money transfer control number). Money recipient has to provide his or her ID card to get money. A recipient has to know the Test Question and answer for the transaction. If you receive more than $10,000 (or the equivalent in Naira), your transaction has to be reported to Central Bank of Nigeria. That’s it. This is how to receive money from Western Union in Nigeria. You can always find detailed information on WU’s local site in Nigeria https://www.westernunion.ng/. For example, you can get a list of all cities that allow collecting U.S. transactions in U.S. dollars, and get other useful information as well.
    • By stone bridge

      So Banky W and Adesua Etomi robbed the spotlight at gbanks2018 traditional wedding, some fans prayed a spell of Baad2017 should not be casted on the new couple as they won’t want to see Nude photos of  Gabriel Afolayan ’s wife circulating over social media a week after their wedding.
      Watch Video:

    • By stone bridge
      Social media is currently buzzing with the hashtag #VisaBae which tells the story of a beautiful young woman from Zimbabwe identified as “Rutendo Tichiwangani”.
      As a social media slay queen, she’s known as rlt_ on Instagram and Rlt on YouTube and her story is as hilarious as it gets.
      Rutendo Tichiwangani boasts of over 70.6k followers on Instagram and 9k subscribers on YouTube as a result of her lavish social media lifestyle that makes her look larger than life.
        Sadly, her visa to stay in the UK is due to expire in one month! And she needs £2300 to pay for it so she can remain in the UK. She, however, can’t afford the visa fee so she has started a Gofundme account.
      Unfortunately, people have lost a lot of sympathy for her fake social media life and how unreasonable she has been for the last 6 years not to have saved up the money required for her visa fee instead of the slaying on social media.
      Watch The Video Below:

Board Life Status

Board startup date: November 26, 2017 14:51:27

Important Information

By using this site, you agree to our Terms of Use.