There have been more advertisements now for banks offering high interest rates for checking and savings accounts. If you're from Ohio, you might have seen those ads on high interest checking Ohio accounts. Or they offer those rewards checking bank accounts, this is something like high rewards for those with checking accounts.
Of course, we wonder how the banks can offer higher rates for these accounts. As I've read from an article, I've found out that banks mainly makes money by the loans they offer. The federal reserve requires the bank to keep 3 to 10% of the banks deposit. They keep this either cash on hand or the bank's reserve account with the Feds. Let's say the banks keep 10% of the total deposit, then this means it has 90% left to lend to the customer and with interest too. And this 90% money goes back into the economy by purchases and paying of services and may end up in another bank. This bank in turn keeps the 10% as a reserve and the cycle goes on.
As for cost for loaning money, the bank then decides on the interest. The bank can either lower the interest on a credit card or financing for a home. The same is true on the banking side, since banks are getting a break lately on the cost to lend, they do not need as much interest from the customer to cover the spread. So the extra money is either kept by themselves or they offer higher interest rates for checking and savings account. One would think that this offer is advantageous only to customers but then, there are certain conditions that are made so the bank would also be benefited. Like there's a limit of withdrawals, so the bank can use the 90% of the money as loans. There may be limits in using the checks so as to minimize costs and etc. With this, one can use the debit or credit cards more in which the bank still benefits since merchants are paying a fee to the bank for every transaction. In conclusion, the bank gains favor through it.
So, when you think about all these, it does make sense on why the banks have high interest checking accounts or savings account rates.
Of course, we wonder how the banks can offer higher rates for these accounts. As I've read from an article, I've found out that banks mainly makes money by the loans they offer. The federal reserve requires the bank to keep 3 to 10% of the banks deposit. They keep this either cash on hand or the bank's reserve account with the Feds. Let's say the banks keep 10% of the total deposit, then this means it has 90% left to lend to the customer and with interest too. And this 90% money goes back into the economy by purchases and paying of services and may end up in another bank. This bank in turn keeps the 10% as a reserve and the cycle goes on.
As for cost for loaning money, the bank then decides on the interest. The bank can either lower the interest on a credit card or financing for a home. The same is true on the banking side, since banks are getting a break lately on the cost to lend, they do not need as much interest from the customer to cover the spread. So the extra money is either kept by themselves or they offer higher interest rates for checking and savings account. One would think that this offer is advantageous only to customers but then, there are certain conditions that are made so the bank would also be benefited. Like there's a limit of withdrawals, so the bank can use the 90% of the money as loans. There may be limits in using the checks so as to minimize costs and etc. With this, one can use the debit or credit cards more in which the bank still benefits since merchants are paying a fee to the bank for every transaction. In conclusion, the bank gains favor through it.
So, when you think about all these, it does make sense on why the banks have high interest checking accounts or savings account rates.
2 comments:
visiting you here :))
Interest rates depend on the bank's financing scheme.
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