How do banks make money?

📘 In Brief Banks primarily make money through the interest margin: they accept savings deposits from customers and pay low interest on them, but lend this money out as loans at higher interest rates. The difference between these interest rates is their core profit. Additionally, they charge fees for services such as account maintenance, transfers, securities trading, or credit cards. Another major revenue item is commissions from the sale of insurance, funds, or other financial products. In investment banking, they also earn through advising on corporate takeovers or through proprietary trading of securities. Ultimately, their business model is based on managing risks, creating liquidity, and charging prices for doing so. 🔍 Why This Matters Banks earn their money primarily through the interest margin, i.e., the difference between the debit interest rates on loans and the credit interest rates on deposits. This margin is the classic and highest-volume source of revenue, although the risk of loan defaults can reduce earnings. In addition, banks generate significant commission income from fees for securities trading, asset management, account maintenance, or payment transactions. These revenues are less dependent on economic cycles than interest income and stabilize the business model. In investment banking, trading and advisory revenues are added, such as from proprietary trading in securities or the structuring of financial products. This segment is more volatile and subject to stricter regulatory capital requirements. Additionally, ancillary businesses such as leasing, factoring, or insurance brokerage play a growing role in reducing dependence on pure inte …