How the Biggest Banks Make Money (2024)

How the Biggest Banks Make Money (1)

To the general public, it may seem like a bank is a bank is a bank. However, financial institutions can differ greatly in structure. And, the financial industry continues to evolve, becoming more complex to understand and navigate. To judge strategic success, we look to revenues, bottom lines, and equity prices.

There are a few key ways that banks and other financial institutions generate income and revenue. At its simplest, banks make money primarily in two ways — investment banking and commercial banking.

What is Investment Banking?

Investment banking refers to services that banks provide to corporations, governments, and other high net-worth individuals such as wealth management, corporate transactions, and corporate activities like mergers and acquisitions or initial public offerings (IPOs).

What is Commercial Banking?

Commercial banking focuses on products and services designed for individual consumers and businesses. Think checking and savings accounts, credit cards, mortgages, auto loans, and other types of personal loans.

How the Biggest U.S. Banks Make Money

Within the commercial banking world, hundreds of banks, including the biggest U.S. banks with the largest assets, rely on a mix of strategies to generate revenue. There are three key areas where banks generate revenue:


Any consumer with a bank account is familiar with bank fees. This can include anything from monthly account fees and out of network fees to overdraft and insufficient funds fees to origination fees for issuing new loans. For instance, the typical overdraft fee is $15 when a customer spends more than the amount available in their account. Overdrafts, and other fees, can be a significant source of bank revenue — the Financial Health Network reports banks and credit unions collected an estimated $9.9 billion in total overdraft/NSF fee revenue in 2022.

The Consumer Financial Protection Bureau (CFPB) is scrutinizing fees for financial services to help lessen the burden on consumers — and has proposed several rules to eliminate “junk fees” like overdraft charges, excessive credit card late fees, and more.

Credit and Lending

Beyond fees, banks also make money through credit and lending through the interest generated in the process. WIth credit cards, banks earn money through interest on credit card balances, as well as related fees like interchange and merchant fees — i.e., each time a retailer processes a credit card payment, a percentage of the transaction amount is paid by the merchant to the bank as an interchange fee. With lending, the bank funds mortgages, auto loans, small business loans, and personal loans based on customer deposits and earns interest on the loan.

Advisory Services

Many banks offer advisory services for an additional cost in different areas, such as wealth management, investments, or retirement. Some determine this cost based on a percentage of assets under management (AUM) while others charge a flat fee or hourly rate for services.

How the Biggest Banks Make Money (2024)


How do big banks make money? ›

Commercial banks make money by providing and earning interest from loans such as mortgages, auto loans, business loans, and personal loans. Customer deposits provide banks with the capital to make these loans.

What is the main way that banks earn money? ›

Interest income is the primary way that most commercial banks make money. As mentioned earlier, it is completed by taking money from depositors who do not need their money now.

How does a bank make most of its money? ›

Banks earn money in three ways: They make money from what they call the spread, or the difference between the interest rate they pay for deposits and the interest rate they receive on the loans they make. They earn interest on the securities they hold.

What is the biggest source of income for banks? ›

The primary source of income for banks is the difference between the interest charged from the borrowers and the interest paid to the depositors. Banks usually collect higher interest from loans than the interest they provide for deposits.

Where do banks borrow money from? ›

Banks can borrow at the discount rate from the Federal Reserve to meet reserve requirements. The Fed charges banks the discount rate, commonly higher than the rate that banks charge each other.

How do millionaires bank their money? ›

Millionaires also have zero-balance accounts with private banks. They leave their money in cash and cash equivalents and they write checks on their zero-balance account. At the end of the business day, the private bank, as custodian of their various accounts, sells off enough liquid assets to settle up for that day.

How do banks make money off of the credit they issue? ›

The primary way that banks make money is interest from credit card accounts. When a cardholder fails to repay their entire balance in a given month, interest fees are charged to the account.

How do banks make money off debit cards? ›

So every time you swipe your debit card, you're issuing bank is making money and their other payment services they provide. And the third leg are fees. So overdraft fees, account fees, wire fees, et cetera.

What do banks do with most of your money? ›

It doesn't remain locked away in the bank vault – instead, the money you deposit into a savings account is used by the bank to make loans to other people and businesses in your community so that they have the money to pay for big expenses like houses and cars, or even to operate a business.

What is a banks biggest expense? ›

The biggest expense item for a bank is the interest expense. Usually, the amount of deposit amount increases due to policies of the bank and the interest expense would also increase. In this competitive scenario if the interest rate is increased it attracts more customers then the bank expenses increase further.

How does Wells Fargo make most of their money? ›

Wells Fargo is among the top five banks in the United States. The bank makes money by lending out at a higher rate than it borrows. Wells Fargo operates four segments including Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management.

How much money do most banks keep on hand? ›

Banks tend to keep only enough cash in the vault to meet their anticipated transaction needs. Very small banks may only keep $50,000 or less on hand, while larger banks might keep as much as $200,000 or more available for transactions.

Can you become a millionaire from banking? ›

Can you become a millionaire as an investment banker? It is possible to become a millionaire as an investment banker, but it is not easy. Investment bankers typically earn salaries in the $200,000 to $700,000 range, with bonuses that can bring their total income up to several million dollars per year.

How much do owners of banks make a year? ›

What Is the Average Bank Owner Salary by State
StateAnnual SalaryMonthly Pay
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