Question

How do banks earn profits?

Hint:

Remember: Banks earn mainly by charging more interest on loans than they pay on deposits.

Answer 1

Banks earn profits mainly by acting as financial intermediaries between depositors and borrowers.
They accept deposits from customers and pay them a lower rate of interest.
They then lend this money to individuals, businesses, or other organizations at a higher rate of interest.
The difference between the interest earned from loans and the interest paid on deposits is called the interest spread, which is the primary source of profit for banks.
Banks also earn income from various service charges, such as account maintenance fees, ATM charges, and processing fees for loans.
They generate additional revenue through investment activities, like investing in government securities or foreign exchange operations.
By offering services like insurance, mutual funds, and wealth management, banks also earn commission-based income.
Together, these sources help banks cover operating costs and make profits.