However, some people are suspicious of where do bank put their money. After all, if you haven’t checked your account recently, you may not know what to expect.
Reserve requirements
In 2004, the U.S. government removed reserve requirements for banks with over $7 million in checkable deposits. Instead, banks were required to hold at least three percent of these funds in reserve. However, banks must also hold reserves against time deposits to avoid losing their licenses. Today, however, banks have to maintain a minimum reserve ratio of 10 percent. The purpose of reserve requirements is to help stabilize interest rates for short-term funds.
Fees are charged to pay operating expenses.
Banks make money from fees charged to customers for transactions in their accounts. These fees come in several forms, including account maintenance fees, overdraft protection, non-sufficient funds, and late fees. Banks generally charge fees for these services to cover the cost of operating an account. The cost of overdraft protection is typical $30 to $35 per account per month. Late fees are another significant source of revenue for banks, with a combined $23.6 billion generated by card issuers in 2019.
Loans to companies
While banks are under fire for their interest rate hikes and fees that have gone out of control, giving them your business is innovative. Giving them your money is safer than hiding it under a mattress despite the risk. By understanding how banks invest your money, you can avoid paying more interest than you make. Author Simon Rankin is a recent college graduate living in Brooklyn. He writes for an interest rate tracking website and maintains a personal finance blog.
Interest rates
A bank’s primary revenue source is interest on deposit accounts. When people withdraw money from their accounts, they are charged a rate of interest that is a percentage of their principal. Banks regulate the interest rate to maintain a healthy economy and control inflation. They also provide services to corporations and investors, which help them match up with the right kind of money.
Loans to farmland
When lending money to farmers, banks consider their ability to repay the loan and the value of the collateral they offer. These assets could be land, buildings, livestock, machinery, personal property, or other financial assets. Because farmland is an asset that can go up in value, lenders tend to focus on loans of less than one million dollars. However, the average size of farm loans is much smaller than this amount.
