How Banks Earn Money Essay example

599 Words Jun 28th, 2016 3 Pages
How Banks Earn Money
Every business exists with a main goal of making profit and banks just like any other business are driven daily by this goal. Generally banks have to make money to continue operating and to grow, they therefore engage in various income generating activities like advancing loans, accepting deposits, agency, financing foreign trade and remittance of funds. To achieve their main goal of making money, banks uses various strategy like levying interest on loans, charging their services, providing foreign exchange services, interbank leading and vaults charge.
To begin with levying interest on loans, banks accepts deposit from customers and uses them to issue loans at an interest rate.
…show more content…
This kind of lending is usually short term for example it can be overnight, two days or at times extending to three months. When a bank lends a fellow bank it receives a refund of the borrowed amount plus interest which goes to the revenues kitty.
Banks also increase their profit base by inducing Charges on vaults. Many people fear to keep precious and important things like jewelry and documents at home due to the risk of theft and fire and thereby opting to keep them in banks. To capitalize on this opportunity banks have different kind of vaults in terms of size and dimension that suits different customer needs. In return for the service provided customers pay annual fee for maintenance, upkeep and also monthly rental.
Apart from these sources of revenues banks earns money from other miscellaneous charges which despite being nominal contributes significantly to banks revenue by sheer number power. Some of the miscellaneous fees collected include cheque book fees, ATM card transaction fees, penalties for withdrawing deposits before maturity dates, standing orders charge, dormant account activation fees and account research fees just to mention a few. In conclusion banks have many ways of earning money and they mostly use sheer number power strategy which involves obtaining little amount from large number of people.

Works cited
Bond, Casey. "How

Related Documents