How banks make their money.

[strappedofessex]

How do banks make their money?

Apart from unlawful penalty charges, how do banks make their huge profits? Is there someone 'on the inside' who can tell us.

I know there is a system of 'overnight lending/borrowing' where they charge very high rates of interest to institutions (including government departments) borrowing very large sums of money for a short period.

How else do they profit from our cash?

Another banking scam I have just discovered:- You pay a bill by standing order and the amount is taken from your account on the due date but does not appear in the recipients account for anything up to a week.
My local credit union told me about this - one of their clients gets charged up to 7 days extra interest on his loan because his bank delays payment to them although it goes from his account on the due date. The rich soaking the poor again?

In Sweden the Government told the banks to clear funds within hours otherwise they would legislate - the banks caved in. Unfortunately we do not have a government that is prepared to control the banks so we have to wait up to a week to 'clear' cheques that are cleared electronically within minutes. This pot of your cash is lent to others at high rates of interest thereby swelling the banks' already overflowing coffers!

Can anyone help?

[indebtstudent]

Try the Motley Fool they generally have good info on this sort of thing...

Don't banks invest your cash? I feel uncomfortable thinking that and can't really see how it would work with current accounts and instant access savings accounts...

Off the top of my head stretching the working week helps. There is no reason in this day in age why a cheque NEEDS five days to clear. All of that interest adds up...

Also, generally, they lend out the money you leave in your account at a higher rate, although, to be fair, things like fixed rate mortgages are financed largely by the money markets...

That's all I can think of from now I'M tired. Oh and PPI and MPPI are a godsend for banks and building societes. Thismeans if you haven't shooped around it's time to.

Advice of course and just my opinion.

[kecimot]

One other think is that banks can lend out TEN TIMES of deposited amount on their accounts.

you have £100 on your account and you get 0.5% - you get £0.50 on interest
they can lend out £1000 with interest rate approx. 8% - they get £80 on interest (or more)

this is nice profit, isn't it?

[indebtstudent]

Who has rates that high?

It's volume that makes banks thier profit, loans for smaller amounts don't generate much profit on thier own.