Question

How Do Banks Work? Explain it.

Answer 1

Banks basically works or make money by lending money at rates higher than the cost of the money they lend. More specifically, banks collect interest on loans and interest payments from the debt securities they own, and pay interest on deposits, CDs, and short-term borrowings.

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Answer 2

☆ANSWER☆

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When putting money in your bank account, have you ever wondered “what is your bank doing with your deposit?” Does it go in a vault somewhere, and someday, you can pull that exact dollar back out? Not exactly.When a person deposits money into their bank account, the bank can then lend other people that money. The depositing customer gains a small amount of money in return (interest on deposits), and the lending customer pays a larger amount of money to the bank in return (interest on loans). To make money for itself, the bank keeps the difference.It can be quite difficult to understand banking, since banks are complex and very different from most other businesses. Part of this is because it can be hard to understand what banks actually do, since they don’t make any physical products. In fact, a lot of people seem to think that banking is “free”, probably because banks keep advertising free checking accounts, free direct deposit, free budgeting features, etc.So how do banks actually work, and what does any of that have to do with you? Here’s what you need to know.