Bank

ELI5 - How do they get profit besides interest? What do they do with our money inside of it?

Banks don't store your money per se, they borrow it and agree that they owe it back to you. They use deposits to fund loans and investments, earning returns by charging higher interest on loans (e.g., 5% on auto loans) than they pay on deposits (e.g., 1% on savings). The difference is their profit.

Less liquid accounts like CDs offer higher interest because banks can lock in those funds for longer-term, higher-yield investments. While banks keep some cash for withdrawals, a mass demand—like in a bank run—would exceed reserves, forcing them to unwind investments and call in loans, which isn't instantly possible.

By Alex 1 month ago