I never learned how it works
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They charge fees for certain account services, but they also tend to pay interest on your account for storing money with them, because they are usually investing your money some how and making *more* money off of it.
Some banks have monthly fees for their accounts, some do not, and some have them but waive them if you meet certain criteria. So whether or not you pay your bank depends on your specific situation.
Some banks pay you interest on checking accounts, but most do not. Most banks pay you interest on a savings account, but that could be as little as 0.01% or as much as 4% right now. The bank is loaning out the money in your savings account to other people and charging them a higher interest rate than they pay you, so the bank is also making money on your account.
banks pay you a small amount to hold your cash, so that they can use your money as collateral against insurance that allows them to give loans to people.
It depends in reality.
Even though this was phrased as a yes or no question, there’s more to it.
In general, a savings account will give a small return on interest. About .02% on average. There may be fees with the account, but generally they are waived as long as you have a certain amount in the account. I think some larger banks are like 10-15k depending on the account type. Like a higher interest account will only waive the fees for a higher amount of money stored.
This is an incentive to keep an amount in the account. The bank makes money off you having money in the bank there because it can then lend money out to other people.
There are higher return accounts that give more, but also have more terms. Like “you will keep 15k in this account, for 6 months, but will get 3% back. If you early withdraw, there is a few hundred penalty.”
This again, because banks want people to maintain large amounts of money in their accounts, and knowing how long the money will be there helps them.
When you deposit money in a bank, you are actually giving them a loan. Think of it that way. But since they are basically guaranteed to pay back the loan, and you can take the money anytime you want, the interest rate on it is super low.
Even if we go back only about 20 years, during that time, banks were often offering pretty killer rates of like 5%… as long as you don’t take out your cash right away. Today, if you do want to be able to take out your cash right away, you can’t ask for much interest on it and may get like 0.01%-3% or often on the lowest end.
Banks have gotten a bit smarter over time, and economic conditions, and now they understand that they also offer you a service you will pay for, they change this so that now they generally charge fees for your their services and offer very low to zero interest rates for many customers — they learned that its just more profitable for them to operate this way instead of trying to compete by offering higher interest rates — offer better service, charge a small fee, and the cost of doing all that offsets, and they end up making more from you — and they get the money on loan.
Some banks charge a fee, especially for low-balance accounts.
“Balance” means the amount of money you have in your account, and “low” would be defined by the bank.
Additionally, some banks have direct deposit requirements to avoid fees. For example, needing to have at least $1000 direct deposited (eg from an employer) each month.
Some banks have free checking accounts. Sometimes theres min requirements to avoid the fee. You get a debit card, can deposit your money there, and they make a profit because they can use your money to loan out. They make money off the interest from the loan, and your money is still available whenever you need it. These also make a profit from things like overdraft fees.
Savings accounts usually don’t have a fee, and allow you to earn interest on the money you keep there. Some savings accounts also provide you with a debit card that you can use for regular purchases. The bank (and you) make money on this kind of account from interest earned from the banks ability to give out loans with your cash. Again, you never see how much of your money go towards these loans, and up to a certain dollar amount, you’re always able to withdraw it whenever you want to.
The specific terms and dollar amounts will be in the paperwork when you set up the account.
If you have a checking account and have direct deposit from your employer and can maintain a a minimum balance, it’s effectively a wash and just a safe place to hold cash
If you want to open up a savings account or a certificate of deposit, you will earn a small amount of interest but you lose the ability to make withdrawals whenever you want
If you’re living paycheck to paycheck and have a hard time maintaining a minimum balance or don’t have direct deposit, you’ll probably have to pay an account maintenance fee each month (the cruel irony of course that the less financially secure that someone is, the more fees a bank is likely to take)
You deposit $10 in your bank account. The bank takes your $10 and loans it out to someone else who pays back the loan with interest, meaning the bank turned your $10 into an $11 repayment.
The bank takes 90 cents out of that $1 they made and they kick you back 10 cents, meaning you now have $10.10 in your bank account.
They’re using your money to make money so they kick you back some of their profits.
If you’re rich, they pay you to keep your money.
If you’re poor, you pay them to keep your money.
Both can be true. Some banks charge fees with no interest especially if it’s below their balance minimum. Other banks pay out and no minimum balance.
Cap One is currently paying 3% for saving account but Citizen charges $75 a month for some accounts if you have below the threshold.
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