How Does a Bank Work, and Why Do Banks Make So Much Money?

How does a bank work? How do banks make so much money? Watch our easy illustrated explanation. Let us imagine, you have $10,000, and you don`t need it right now. And Sabrina wants to buy a car, but she has no money. Well, here is a solution for both of you. BANK! You deposit your 10 thousands in the bank. And the bank gives you interest of 5%. It takes your money, transfor it into loans, and give other people to buy a house, or an auto. The secret is: loat rate is higher than deposit rates. Car loan interest rate for Sabrina is 8 percent. 8% - 5% = 3%: this is how banks make money. Other income sources of banks: ATM fees, overdraft fees, late payments fees, penalty fees, interchange fees. $10,00 - $10,500 = $300 - this is how the bank used your money to make profit ($300).