Eli5: How do banks consistently make a return on the customers money they invest?

Question

You can’t withdraw all your money from your bank account because it is constantly being invested and reinvested, but how come banks are never ‘down’ on these investments in the same way the average person is with their investments? Are they protected by government guarantee so they can just reap huge profits by investing constantly without risk?

In: 0

Answer 1

Banks cannot invest in the stock market and the like… they invest by loaning the money for mortgages, auto loans, credit cards, business loans. The lower interest loans are collateralized by assets like the house or car. The unsecured loans (credit cards) are much higher interest rates.