John Th
 |
You have many types of banks:
Private, retail, investment, etc... banks (and many types more).
Banks earn in many ways money, but mainly on:
- Investments, they invest safely money of others (like you and me), but mostly people who can miss the money or who have huge saving accounts.
- Selling products such as long-term saving (retirement savings, new born child's savings, etc...)
- They buy assets (buildings, houses and sell them for more over time).
- Provide Loans for car, house, boats, etc... for you, me and companies.
And many others, but this is a good start. |
Sangmo
 |
They basically make their money by borrowing money at one interest rate (eg from savers) and lending it at a higher rate (eg business or property loans). If you enquire about savings accounts and about mortgages at your local bank, you will generally find the mortgage interest rates are higher than the savings interest rates. So, essentially, they take a percentage of all of the money that passes through their hands, which is nice business, but they do a useful job.
Their profit is normally protected from borrower default by having collateral for the loans they make, although this does not always work, eg if the value of the assets used as collateral falls. |
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