Why do banks care if you put your money there?

[TheNinja]

In all the movies (and I guess in real life?) if there is a really rich person it's like all the banks are climbing over each other and treat the guy like royalty to try and get this person to put their money in their bank. My guess is that they have people with a lot of money so they can loan money out to other people at a higher interest rate but I don't quite understand it. Who will shed some more light on the subject?

 

[jfall]

You have been watching Beverly Hillbillies haven't you?

 

[SoylentGreen]

Wow take a finance 101 class if you're really that interested.

They have your money and pay you a low to no rate of interest and turn around with loans several points higher.

That and any bank fees that may be made from your transactions.

 

[HardcoreRobot]

Originally posted by: Staley8
In all the movies (and I guess in real life?) if there is a really rich person it's like all the banks are climbing over each other and treat the guy like royalty to try and get this person to put their money in their bank. My guess is that they have people with a lot of money so they can loan money out to other people at a higher interest rate but I don't quite understand it. Who will shed some more light on the subject?

You pretty much summed it up. You give the bank free reign of your money, just as long as they give it back if you ask them to. So, they can loan it out to other people and make money on interest. As long as the people they loan to pay higher interest than the bank pays you, they make money.

 

[RobCur]

heh, that's how they make extra money, nuff said:roll:

 

[toant103]

Originally posted by: SoylentGreen
Wow take a finance 101 class if you're really that interested.

They have your money and pay you a low to no rate of interest and turn around with loans several points higher.

That and any bank fees that may be made from your transactions.

not only that, they use that money to invest in the FOREX market. big big return.

 

[dullard]

There are many reasons, including intangibles. But the main reason that banks want savings is due to a law restricting the dollar amount of loans they can have (this was passed in part to avoid problems that banks had in the great depression).

Suppose a bank has $1 million in savings accounts. Then the bank can make X*$1 million in loans. Sorry but I don't know the factor, X, off the top of my head. Lets for fun, just pretend X=5. Thus that bank can legally make $5 million in loans.

Lets suppose that bank already made $5 million in loans. What if the bank wants to make more money in interest and loan closing fees? Well too bad, that bank is already at its legal limit. The bank has 2 options: (1) sell some of its loans which reduces the income from those or (2) increase savings.

Obviously the biggest bank profit comes from increased savings. That answers your thread title. What about your post as to why banks like large customers? I'll answer that with a question.

Which is cheaper for the bank: (A) finding 1000 people to put $1000 each into 1000 savings accounts and the paperwork and transaction losses associated with each or (B) one person who deposits $1 million? I hope I don't have to answer that question for you. Remember that the bank loses lots of money with each transaction each of those 1000 accounts make.

 

[MrChad]

Originally posted by: dullard
There are many reasons, including intangibles. But the main reason that banks want savings is due to a law restricting the dollar amount of loans they can have (this was passed in part to avoid problems that banks had in the great depression).

Suppose a bank has $1 million in savings accounts. Then the bank can make X*$1 million in loans. Sorry but I don't know the factor, X, off the top of my head. Lets for fun, just pretend X=5. Thus that bank can legally make $5 million in loans.

Lets suppose that bank already made $5 million in loans. What if the bank wants to make more money in interest and loan closing fees? Well too bad, that bank is already at its legal limit. The bank has 2 options: (1) sell some of its loans which reduces the income from those or (2) increase savings.

Obviously the biggest bank profit comes from increased savings. That answers your thread title. What about your post as to why banks like large customers? I'll answer that with a question.

Which is cheaper for the bank: (A) finding 1000 people to put $1000 each into 1000 savings accounts and the paperwork and transaction losses associated with each or (B) one person who deposits $1 million? I hope I don't have to answer that question for you. Remember that the bank loses lots of money with each transaction each of those 1000 accounts make.

Correct. This is known as "reserve requirements", and the Federal Reserve determines what the reserve ratio is. Text

 

[dullard]

Originally posted by: MrChad
Correct. This is known as "reserve requirements", and the Federal Reserve determines what the reserve ratio is. Text

Looks like the first $6.6 million is exempt, so my numbers are off a bit - but my point is still correct.

 

[TheNinja]

Originally posted by: dullard
There are many reasons, including intangibles. But the main reason that banks want savings is due to a law restricting the dollar amount of loans they can have (this was passed in part to avoid problems that banks had in the great depression).

Suppose a bank has $1 million in savings accounts. Then the bank can make X*$1 million in loans. Sorry but I don't know the factor, X, off the top of my head. Lets for fun, just pretend X=5. Thus that bank can legally make $5 million in loans.

Lets suppose that bank already made $5 million in loans. What if the bank wants to make more money in interest and loan closing fees? Well too bad, that bank is already at its legal limit. The bank has 2 options: (1) sell some of its loans which reduces the income from those or (2) increase savings.

Obviously the biggest bank profit comes from increased savings. That answers your thread title. What about your post as to why banks like large customers? I'll answer that with a question.

Which is cheaper for the bank: (A) finding 1000 people to put $1000 each into 1000 savings accounts and the paperwork and transaction losses associated with each or (B) one person who deposits $1 million? I hope I don't have to answer that question for you. Remember that the bank loses lots of money with each transaction each of those 1000 accounts make.

Nicely summed up and explained well. thanks :thumbsup: