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How can a bank pay interest to the depositors and still make a profit?
Wiki User
∙ 12y ago
There are several ways e.g. it pays depositors x% but charges borrowers x+y%. The y% is the lending margin which represents profit to the bank. Additionally, as banks are only required to keep (say) 8% liquidity, each GBP1 deposit can be geared up (say) 12.5 times i.e. loans totalling GBP 12.50. The effect would be y% x 12.5x profit. Ofcourse this is a simplistic example. In reality, banks can gear up up to 100 times like RBS did at one time.
Wiki User
∙ 12y ago
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How does a bank make most of its profit on it business?
By paying out less in interest on deposits than it earns in interest on loans
What do banks use depositors money?
The bank customers share of profit made on loans by the bank is called the "Interest". It is the money the bank pays the customer for having their money deposited with the bank. As you know, the bank earns an interest income from loan customers for the money they lend them, and since this money they lend is taken from the deposits placed by customers, banks share the profit by paying an interest to the customer who has placed the deposit with them.
The money a bank pays depositors for the right to use their money is called?
Interest.
How bank act as a mediator for borrowers and depositors?
The banks mediate between those who want to deposit surplus money and those who want money. To the depositors banks give them interest and from the borrowers they charge a higher interest rate. The difference between what they charge from borrowers and what they offer to the depositors is the main source of their income.
What advantages and disadvantages do commercial banks gain from maintaining lenders and borrowers?
Lenders (depositors) are an essential source of any bank's main tool i.e the fund. The borrowers provide the profit (interest) which makes the whole system revolve.
How does a bank make most of its profit on it business?
By paying out less in interest on deposits than it earns in interest on loans
How do banks earn profit from lending money to their customers?
The customer pays the bank interest on the loan. The bank pays some of this interest to its depositors. The difference between incoming interest and outgoing interest (minus operating costs) is the bank's profit. With most loans charging more than 10% interest and most deposit accounts paying less than 0.5% interest, the bank can make loads of profit!
How do banks earn money from lending money to their customers?
The customer pays the bank interest on the loan. The bank pays some of this interest to its depositors. The difference between incoming interest and outgoing interest (minus operating costs) is the bank's profit. With most loans charging more than 10% interest and most deposit accounts paying less than 0.5% interest, the bank can make loads of profit!
What do banks use depositors money?
The bank customers share of profit made on loans by the bank is called the "Interest". It is the money the bank pays the customer for having their money deposited with the bank. As you know, the bank earns an interest income from loan customers for the money they lend them, and since this money they lend is taken from the deposits placed by customers, banks share the profit by paying an interest to the customer who has placed the deposit with them.
The money a bank pays depositors for the right to use their money is called?
Interest.
How bank act as a mediator for borrowers and depositors?
The banks mediate between those who want to deposit surplus money and those who want money. To the depositors banks give them interest and from the borrowers they charge a higher interest rate. The difference between what they charge from borrowers and what they offer to the depositors is the main source of their income.
What advantages and disadvantages do commercial banks gain from maintaining lenders and borrowers?
Lenders (depositors) are an essential source of any bank's main tool i.e the fund. The borrowers provide the profit (interest) which makes the whole system revolve.
What is the bank customer shares of the profit made of loans?
Savings account interest and all other forms of interest earned on deposits with a bank is a person's share of the bank's profit made on loans.
What is the bank profit?
Banks profit from interest income and other charges they levy on their account holders.
When do you get interest from the bank?
The bank customers share of profit made on loans by the bank is called the "Interest". It is the money the bank pays the customer for having their money deposited with the bank. As you know, the bank earns an interest income from loan customers for the money they lend them, and since this money they lend is taken from the deposits placed by customers, banks share the profit by paying an interest to the customer who has placed the deposit with them.
Why do banks charge borrowers a higher rate of interest than they pay their depositors?
First a bank is not a nonprofit business. The difference in the interests rates is how they make their money and cover the cost of loans that default. By lending someone money the bank is risking that the money wont be paid back. That risk is theirs to carry if they charged the same interest to the borrowers as the depositors there would be no money cushion to cover the loss of a bad loan and it would be unfair for the depositors to loose their money because the bank made a bad loan.
People who have money in a bank are called?
depositors
