Make money loaning money

Their product just happens to be money. Other businesses sell widgets or services; banks sell money -- in the form of loans, certificates of deposit CDs and other financial products.

They make money on the interest they charge on loans because that interest is higher than the interest they pay on depositors' accounts. The interest rate a bank charges its borrowers depends on both the number of people who want to borrow and the amount of money the bank has available to lend. As we mentioned in the previous section, the amount available to lend also depends upon the reserve requirement the Federal Reserve Board has set.

At the same time, it may also be affected by the funds ratewhich is the interest rate that banks charge each other for short-term loans to meet their reserve requirements. Check out How the Fed Works for more on how the Fed influences the economy.

Loaning money is also inherently risky. A bank never really knows if it'll get that money back. Therefore, the riskier the how successfully are successful trade binary options the higher make money loaning money interest rate the bank charges.

While paying interest may not seem to be a great financial move in some respects, it really is a small price to pay for using someone else's money. Imagine having to save all of the money you forex xpma in order to buy a house.

We wouldn't be able to buy houses until we retired! Banks also charge fees for services like checking, ATM access and overdraft protection. Loans have their own set of fees that go along with them. Another source of income for banks is investments and securities.

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