The title doesn’t seem like a good question?
Let’s consider this, all the money a bank has, comes from its costumers or the central bank(which they have to repay) yet bankers are one of the highest paid individuals in the world, the infrastructure of banks are better than majority of corporations.
Still doesn’t sound amusing?
Let’s say you are the only customer of a bank (hypothetically of course). All the money you earn goes to bank. But, over a peroid of time the bank become richer than you.
WTH
WTH? Why? How?
A bank charges its customers fees for everything( pretty much ) from transactions of huge sums, putting money in various funds( mutual funds, pension funds, etc). taking money out of the funds, online payments fees, etc.
For example – When(if) you go to a bank for investing in a mutual fund, you will be handed a books of hundreds of pages which is filled with complex economical words which look may like a witch’s spell. Here’s a free tip to cut for you through the mud, every time you see the words cost, fees(management fees, transaction fees, etc), (which will be in percentages) this is amount that will be taken from your pocket other than the actual investment. (usually ranges between 20% – 40%)
What does this mean?
This simply means that, even if all your money is lost the bank will still make a good bit depending on the amount of your investment.
- F.Y.I the total amount in mutual funds in U.S.A alone is $5 Trillion i.e almost 5 times of Pakistan’s G.D.P ($1.202 trillion……Wikipedia).
Moreover there are interests on loans given.
Wow that sounds like a lot income for the banks.
Yes, but that’s not their biggest source of income. (According to me)
The below information is more of my personal theory (so take it with a grain of salt) and there ain’t any official numbers to this.
Let us say you live India, the INFLATION is 8% (quarterly). You keep some amount in a saving account, the interest you get is 0.4% per year (i.e 0.1 per quarter). Congrats you lost 7.9%( 8 – 0.1 =7.9) of your purchasing power every 3 months. If you put the same amount in a fixed deposit with 6% interest(usual rate) per year i.e 1.5% per quarter. You end up losing 6.5%( 8 – 1.5 =6.5) of your purchasing power. Moreover, while you have kept money, the bank gives it to others at interest rates above 12%.
And well, its not just you, there are millions who put their money in the bank.
Before I end this, I want you to think that, even after so many sources of income, how do banks show quarterly losses? Legally.
If you don’t get it. Stay tuned as this will be explain in further posts.
I hope you liked the read, in case you didn’t I am sorry but there is no dislike button, you can always use comments though.
By Bhavik Gandhi December 12, 2019
Easy Economics 