How Does Bank Generate Money?

What is A Bank? 

Bank is the Financial Institution which accepts the money from public in the form of deposits and also lends the money to public in the form of loans and carry out the financial activities.

Bank plays a major role in the economy and it is the backbone of the financial operations in the country

Let’s look into how Bank Generates Money

POV of the General Public:

• Usually People think that Banks lend loans and charges interest on the loans through which it generates most of its Revenue.

• Banks provide locker facility services and charges fees to it where it may generate its secondary income.

How Banks actually generate money?

• Banks do invest in physical gold as well as in sovereign gold

bonds and in stocks and get healthy returns on it , through which it generates the primary source of income.

• Banks provide various services as following:-

1. Exchange of currencies

2. Investment management

3. Credit card and Debit card

4. Mutual funds and many more

Bank charges fees on these services which generates a healthy income for it.

• As people's assumption interest income is also a part of Bank's Revenue

Personal Finance Tip:

In which of the Banks the public need to deposit their savings or Income.?

Which ever bank is under the situation of Bank Run in such bank people should not deposit /invest their money.

 

What is Bank Run?

Bank run is a situation where large group of investor/depositors withdraw their money from bank simultaneously based on the fear that institution/bank will become insolvent.

Nowadays People usually deposit or invest their money for the purpose of emergency(emergency fund) or for liquidity...