Banks offer a large number of financial services, and pay you interest on at least some of them. Because of this, many people are quick to overlook the fact that banking is still a business, and banks need to make money to pay their employees, keep the utilities running, and make a profit for their shareholders and customers. If you've ever found yourself wondering exactly how it is that banks manage to pay out as much as they do while still making money, then this article is designed for you. Below you'll find information on some basic banking services, as well as how banks make the money that they need to cover all of their expenses and make the profits that they need to grow.
The Basics of Banking
Most banks have a variety of account types and services in common. These include savings accounts, chequeing accounts, certificates of deposit, investment services, online account access, and lending services, and are among the things that most people expect to find when they choose a new bank. Having services in common with other banks enable the banking industry to be competitive … one bank can set itself apart from the rest by offering superior service and better rates and terms than the others that they compete with locally.
Savings, CD's, and Other Interest-Bearing Accounts
Some of the services that banks offer are interest-bearing, meaning that they have an interest rate that is paid to the account holder based upon the amount of money that's in the account. These accounts are an incentiv for customers to put both their money and their trust into the bank, as they are the accounts that pay a return on the money in them. Interest rates that are paid on these accounts can vary from bank to bank, because they are all based upon rates that are set nationally to ensure that they do not fall too low.
Checking, Loans, and Other Interest-Charging Accounts
In order for banks to stay in business, they have to make money one way or another. They do this by issuing loans, offering chequeing accounts, and having other interest-charging accounts and services that must be paid for.
Loans require that the borrowed amount be repaid with interest, and many chequeing accounts either charge a monthly maintenance fee or have other costs associated with them in addition to the overdraft fees and fines that are applied when you try to write a checks for more than you have in your account. Other services, such as safe deposit boxes, also have fees associated with their use, and credit cards that are issued by banks charge interest rates as well as potentially some other fees associated with their use.
Advanced Banking Services
There are a variety of banking services that are not common to every bank but are well-known enough that many banks offer them. Services such as online account access and itemized bank statements may be offered for free or may have charges associated with them, but provide a better understanding of your finances and more information on where your money is going and how than the standard bank statement.
Banks may also offer advanced services such as investment services, money market accounts, currency exchange, and even the opportunity to invest in the bank itself. The services that are offered by any one bank will greatly depend upon that bank and the wishes of the owners and operators, so you should investigate fully the services that are offered before assuming that any one specific service is available.