Banks offer several financial products and services to both consumers and businesses. But as for-profit organizations, banks are in the business of making money.
So, how do banks make money? Ultimately, it depends on the types of products and services they offer. But in general, it’s through various fees and interest charges.
If you’re wondering how your bank makes money off you and how to minimize your costs, here’s what you need to know.
How banks make money
Banks make money in a variety of ways — depending on your relationship with your bank, it’s important to know how you’re contributing to your financial institution’s bottom line.
Banking fees
Banks may charge a variety of fees on the bank accounts they offer. Whether you have a checking account, savings account, money market account, or certificate of deposit (CD), here’s what to look for:
Monthly maintenance fee: Some accounts come with a monthly service charge just for maintaining the account. In many cases, however, you can get this fee waived with certain account activity, such as a minimum balance or monthly direct deposit amount.
Overdraft charges: Many banks allow you to opt in for overdraft coverage, which allows you to overdraw your account in certain situations. However, they typically charge a fee for each overdraft. If you don’t have overdraft coverage and your bank declines a transaction due to a lack of funds, you may be charged a nonsufficient funds fee.
Other account fees: Depending on how you use your account, you may also be subject to other fees. Examples include charges for check orders, out-of-network ATM transactions, check stop payments, paper statements, wire transfers, early withdrawals (CDs only), international debit card transactions, and account inactivity.
To minimize your banking fees, consider opting for a bank that doesn’t charge a monthly maintenance fee. Also, try to maintain a buffer in your checking account to avoid overdrafts, be mindful of which ATMs you use, and avoid other costly features.
Lending money
A bank’s primary business involves pooling customer deposits and lending that money out in the form of mortgage loans, auto loans, credit cards, and other financing options. Lending-related income is typically broken down into interest and fees:
Interest: When you take out a loan or open a credit card, interest is one of the costs of borrowing. Lenders usually offer a range of interest rates on their lending products to account for the different risk profiles among their borrowers.
Origination fees: If you’re applying for a home loan or personal loan, you may be subject to an origination fee, which helps cover the costs the lender incurs processing your application. In some cases, you may also be subject to an application fee or administrative fee.
Prepayment penalties: With certain loans, lenders may charge a prepayment penalty if you pay off or refinance your loan shortly after you take out the loan.
Annual fees: If you have a credit card or line of credit, your lender may charge an annual fee just for the privilege of using the account.
Other fees: Depending on the lender and type of loan, you may also face other fees, including charges for late or returned payments, credit report reviews, credit line draws, credit card cash advances, and balance transfers.
You can minimize your loan-related costs by improving your credit score to qualify for lower interest rates and shopping around to ensure you’re getting the best deal possible on a loan or credit card.
If you have a credit card, paying off the balance in full each month is the best way to avoid interest charges.
Investment services
Some banks also offer investment advisory or wealth management services to their customers in exchange for various fees. Examples include:
Sales commissions
Trading fees
Annual management fees
Hourly consulting fees
Broker-assisted transaction fees
You may not be able to avoid all investment-related fees, but shopping around can help you avoid costlier investment services.
Other services
Larger banks may also offer other services that may benefit individuals and small businesses. Some examples include:
Merchant services
Treasury management
Estate planning advisory services
Trust management
Mergers and acquisitions services
For each of these services, banks typically charge various fees. If you’re looking for one of these services, take your time to compare banks to ensure you’re getting the best value for what you need.
Do banks create money?
While banks use customer deposits to originate loans, they generally keep some of those deposits in reserve to comply with federal regulations and meet the needs of their deposit customers.
However, they essentially create money — at least, on paper — when they lend those deposits to new customers. For example, if you have $10,000 in a checking account and $9,000 of that is used to fund a personal loan for another customer, you still have $10,000 in your account, but now the loan customer has $9,000 in their bank account.
With that in mind, it’s important to note that a bank’s ability to create money is dependent on its reserves. It can’t just generate money out of thin air.
What to do if your bank values profit over service
All financial institutions charge fees and interest for the products and services they provide. But the value you get in return for the cost of managing your money can vary greatly.
For example, while big national banks offer a wide range of products and services, they’re more likely to charge monthly fees on even basic bank accounts. They’re also less likely to offer high interest rates on deposit accounts.
If you’re unhappy with the service or features you’re getting from your bank, here are some options to consider.
Shop around for another bank
To ensure you’re getting the most value from your bank accounts, consider shopping around for the features that are most important to you. This may include things like higher yields on savings accounts, no monthly fees, ATM fee reimbursements, debit card rewards, and more.
In general, online banks tend to offer better bank accounts because they don’t have the same overhead costs as a brick-and-mortar bank. However, you may also consider community banks, which are smaller and more dedicated to serving a local community.
Consider a credit union
You’re not going to avoid fees and interest completely by switching to a credit union. However, credit unions are not-for-profit organizations that return profits to their members in the form of lower loan interest rates, higher rates on deposit accounts, and reduced fees.
Credit unions are also more likely to offer better customer service, though they may not provide as many products and service options. They also typically have eligibility requirements you need to meet before you can join.
Refinance your loan
If you have a high-interest loan or credit card, you may consider refinancing or consolidating the debt with another bank or lending institution that offers better terms or benefits.
Just keep in mind that a high rate may also be a result of a low credit score. It’s also important to evaluate your credit profile and financial situation to determine whether you qualify for better loan and credit card options.
The bottom line
Banks make money in a lot of different ways, but it’s possible to minimize how much of that profit comes out of your pocket. While some service-related fees may be unavoidable, it’s important to shop around for all of your financial needs to ensure you’re getting the most bang for your buck.
While it may be tempting to stick with one bank to keep all of your finances under one proverbial roof, you may be able to get more value by using multiple financial institutions to manage your money and work toward your goals.
What is online banking?
Online banking, or digital banking, is done over the internet, whether through an app or on your computer. If your financial institution offers online banking, or if it is an online-only bank, you can generally conduct all of the following activities electronically, 24/7, from any location with internet service:
Log in to your bank account(s)
Transfer funds
Deposit checks by uploading check photos
Review account transactions
Set up automatic bill payments
Apply for bank accounts, loans, and credit cards
In recent years, many banks have shifted to these kinds of online and mobile offerings and away from in-person services. Between 2021 and 2023, a net of 6,191 bank branches closed in the U.S. Wells Fargo alone closed 293 branches in 2023, according to S&P Global.
Online banking versus traditional banking: Key differences
The main difference between traditional and online banking is the ability to conduct banking activities in person.
With a traditional bank, you can visit a branch during business hours to do things like get a money order, withdraw funds, or use a safe deposit box. Some traditional banks also offer in-person wealth management services or financial advising.
You probably won’t get those services if you switch to an online-only bank, but there is a major upside: Online banks have fewer overhead costs, so they tend to pass savings on to customers through low or no bank fees, high deposit rates, and better credit card rewards.
Should you choose traditional or online banking (or a mix of both)?
You don’t necessarily have to choose between traditional and online banking since many banks offer both options. But if you currently rely on traditional banking only, you could benefit from moving some of your money to an online bank. The mix of both banking types gives you the best of both worlds: In-person support when needed, plus 24/7 banking services, competitive rates on your deposits, and lower fees.
For example, you may want to open a checking account at a traditional bank for day-to-day transactions but deposit your emergency savings into an online high-yield savings account.
Traditional and Online Bank Comparison: Starting APY
Despite what you might assume, moving your deposits to an online bank can also improve your account security. According to Comparitech, a company that provides information and reviews on cybersecurity services, banks represented almost half of all companies that experienced financial data breaches in 2023, but online banks experienced less than 0.5% of data breaches.
Whichever way you choose to go, make sure you can answer these questions before opening an account at any bank:
Location: For traditional banks, is there a bank branch in your area?
Insurance: Is the bank FDIC-insured, per BankFind Suite? For a credit union, is it NCUA-insured per NCUA.gov?
Security: Do the accounts come with essential security features like two-factor authentication and facial recognition?
Fees: Are there monthly accounts fees and/or fees for dropping below the minimum balance requirement?
APY: Can you earn competitive interest rates on your deposits?
Speed of transactions: Does the bank use a payment service like FedNow that lets you access your paycheck deposits and transfer payments within seconds, or is there a 1-3 business day delay?
UFB Direct products and services
Here’s a look at the products offered by UFB Direct:
Freedom Checking Account: UFB Direct’s Freedom Checking account has no monthly maintenance fees or minimum deposit requirements. It also offers 5.25% APY. Customers can boost their earnings by bundling this account with the UFB Secure Savings account, allowing them to earn a combined APY of up to 5.45%. The Freedom Checking account also comes with a complimentary debit card and access to over 90,000 ATMs.
Secure Savings: The UFB Secure Savings account is a high-yield savings account that offers up to 5.25% APY on all balances. There are no maintenance or service fees and no minimum balance required. This account ranks among our list of the 10 best high-yield savings accounts available today.
Secure Money Market Account: This account offers up to 5.25% APY with no monthly maintenance fees for balances of $5,000 or more. If your balance falls below this threshold, you’ll be charged a $10 monthly maintenance fee.
Mortgages: UFB Direct offers home loans through Axos Bank, which will waive its full lender fee for loan amounts of $250,000 and above, or reduce its lender fee by $200 for loan amounts of less than $250,000 when certain conditions are met.
UFB Direct fees
Here’s a closer look at the fees you may be responsible for as a UFB Direct customer:
UFB Direct pros and cons
Here are some of the major pros and cons to consider before becoming a UFB Direct customer:
Pros:
Competitive rates on checking and savings accounts: UFB offers well above 5% APY for its checking and savings accounts.
24/7 customer service: Customers can get assistance 24/7 via telephone and secure messaging.
Cons:
Monthly maintenance fee for money market account: For account holders with a balance of less than $5,000, a $10 monthly fee applies.
No physical branches: UFB is an online-only bank, meaning that customers don’t have the added convenience of having a physical branch location to visit.
Customer service and mobile banking experience
The UFB Direct mobile app allows customers to bank from their mobile devices, with the ability to deposit checks, review account balance and history, transfer money between accounts, pay bills, contact a customer service representative, and more. The app is available for download on both the App Store and Google Play and has an average rating of 4.8 on both storefronts.
UFB Direct customer service representatives are available 24/7 via telephone and secure message.
Frequently asked questions
Is UFB Direct FDIC-insured?
Yes. UFB Direct is a part of Axos Bank, an FDIC-insured financial institution.
What is UFB Direct’s routing number?
UFB Direct’s routing number is 122287251.
Is UFB Direct a real bank?
Yes. UFB Direct is an online division of Axos Bank.
Barclays products and services
Barclays offers two types of products for online customers that include:
Barclays Online Savings: The Barclays Online Savings Account is a high-yield savings account with an interest rate that’s nearly 10 times the national average for savings accounts. This account doesn’t charge monthly maintenance fees or pose any minimum balance requirements. Barclays also offers a free savings assistant tool to help customers figure out how much they need to save each month to reach their goals. In fact, this account was selected as one of the 10 best high-yield savings accounts by our team of experts.
Barclays Online CDs: Long-term savers can explore Barclays online CDs, with terms that range from six months to 60 months, and rates as high as 5.00% APY. Interest on these CDs compounds daily and there are no hidden monthly fees or minimum balance requirements.
Barclays Bank fees
Here are some of the fees you can expect to pay as a Barclays customer:
Read more: What are bank fees, and how do I avoid them?
Barclays Bank pros and cons
Here’s a closer look at some of the major pros and cons of banking with Barclays:
Pros:
Competitive rates: Barclays’ savings account and CDs offer competitive rates of up to 4.35% and 5.00%, respectively.
Low fees: Barclays doesn’t charge annual fees or monthly maintenance fees for its accounts. It also doesn’t require a minimum balance to open an account.
Cons:
Limited account offerings: Barclays’ online account options only include a savings account and CDs. Customers who want a checking account option will need to explore other banks.
No physical branches in the U.S.: Barclays does not have any physical branch locations in the U.S. for customers to visit. Those who frequent their bank’s branch or prefer to resolve banking issues in person will have to rely on online support instead.
Customer service and mobile banking experience
For banking-related questions, customers can contact a Barclays representative seven days a week between 8:00 a.m. and 8:00 p.m. ET.
Barclays customers can access their accounts 24/7 via the bank’s mobile app to view account balances, transfer money between accounts, and deposit checks remotely. The app is available for download on the App Store and Google Play, though neither is highly rated, with an average rating of 3.2 and 1.9, respectively.
Social and environmental impact
Barclays is committed to addressing climate change and becoming a net zero bank by 2050. It is also working on aligning its financing with the goals and timelines of the Paris Agreement and plans to invest up to £500 million of its own capital into climate tech companies by the end of 2027, among other climate goals.
Barclays also actively gives back to the communities it serves by empowering entrepreneurs to connect with one another and scale their businesses and investing in sustainability-focused startups.
Frequently asked questions
Is Barclays FDIC-insured?
Yes. Barclays Bank is a member of the FDIC.
What is Barclays’ routing number?
Barclays’ routing number is 031101321.
Does Barclays charge monthly service fees for any of its accounts?
No. Barclays does not charge any monthly maintenance or annual fees for its accounts.
Chime products and services
Here’s a closer look at the products and services Chime offers:
Chime online checking account: Chime offers an online checking account for customers who want a fee-free account with no monthly fee, minimum opening deposit, overdraft fees, or minimum balance requirements. This account does not earn interest, but it does offer other perks, including early direct deposit, a “SpotMe” program that allows account holders to overdraft up to $200 with no fees, and a Chime Visa debit card. In fact, Chime’s checking account made our list of the 10 best free checking accounts available today.
Chime high-yield savings account: The Chime high-yield savings account offers a fee-free way for savers to grow their balances at a rate of 2.00% APY (that’s more than four times the national average rate for a savings account). This account doesn’t charge a monthly fee or require a minimum opening deposit or minimum balance. Savers can also round up purchases and automate their deposits to grow their savings over time.
Chime Credit Builder Secured Visa® Credit Card: Customers looking to build or improve their credit score can do so with the Chime Credit Builder card. This is a secured credit card with no annual fee and no minimum security deposit. There is no credit check required to qualify for this card, and it’s up to the customer to set their own credit limit based on how much they deposit into their account.
Chime fees
Chime does not charge any fees to open or maintain your account. However, there are a few fees you could incur depending on how you use your account.
Chime pros and cons
If you’re considering banking with Chime, here are a few of the major pros and cons to consider:
Pros:
No monthly fees: Chime doesn’t charge any monthly fees for its product options, which can be a major bonus if you’re looking for a fee-free checking or savings account.
Large fee-free ATM network: Chime provides access to a network of more than 60,000 fee-free ATMs, making it easy to access your funds and withdraw cash without incurring ATM fees.
Early direct deposit: Customers can access their paychecks up to two days early by setting up direct deposit through Chime.
Cons:
No physical branches: As a fintech company, Chime operates solely online with no physical branches. This isn’t always a drawback for those who prefer online banking. However, if you prefer to resolve banking issues in person, this is an important factor to consider.
Limited product offerings: Chime offers a few basic banking products, which may be enough to cover your banking needs. However, if you’re looking to invest, explore savings vehicles outside of a high-yield savings account, or want a larger variety of credit card options to choose from, this bank may not be the best fit.
Customer service and mobile banking experience
Customers can’t visit a physical branch for in-person help. However, it is possible to contact a customer service representative 24/7 via telephone or the Chime mobile app’s live chat feature.
The Chime mobile app is available for download for Apple and Android users on the App Store and Google Play — it has an average rating of 4.8 and 4.6 stars, respectively. With the Chime app, customers can check their account balances, pay bills online, transfer money to and from external bank accounts, and more.
Social and environmental impact
Chime gives back to the communities it serves in a few different ways. For instance, the Chime Scholars Foundation (CSF) is a nonprofit organization that awards scholarships of up to $5,000 to low-income students.
The “Chime in for Changemakers” program is a separate initiative that partners with organizations working to champion financial empowerment for all. Each Changemaker is provided with support to increase their reach and impact. This includes financial investment, the use of Chime’s brand voice, employee resources, and more.
Chime has also partnered with SBP to help natural disaster victims and reduce the time between disaster and recovery in its members’ communities.
Frequently asked questions (FAQs)
Is Chime FDIC insured?
Chime is a financial technology company, not a bank, but accounts you open through Chime are FDIC-insured through Chime’s partner banks.
What is Chime’s routing number?
The routing number for your Chime account will depend on which partner bank services your account. For accounts serviced by The Bancorp Bank, the routing number is 031101279. For accounts serviced by Stride Bank, the routing number is 103100195.
How much credit will Chime give you?
Chime offers a secured credit builder card with no pre-set credit limit. Instead, you decide how much money to move into your secured account, which becomes your credit limit.