Interest Rates on Savings Accounts
We pay you interest, as little as we can get away with, and lend it out at much higher interest rates. We at the brick and mortar bank in your town currently pay .25% interest on savings accts. When internet banks came along with desktop convenience and rates 3, 4, 5 times ours, we were worried. Our marketing people calmed us down. “Look, stress the importance of banking with someone you know and trust. Imply, you’ll get better treatment when you apply for a car loan or mortgage etc., if your savings account is with us. Give em coffee or cookies when they come to complain about rates; make them feel comfortable, ya know, part of the family. Most of all, imply that it’s safer than some anonymous online account. Sure, an FDIC guarantee applied to all FDIC banks equally, but you can fill them with a bit of doubt. Keep in mind, lots of people are in fear of banks; don’t dissuade that fear.”
Attractive initial rates on CDs
Certificates of Deposit (CDs) are essentially savings accounts where you agree to keep a fixed amount of your money on deposit for a stated period of time like 90 days 180 days, or 365 days. In return, we pay a slightly higher interest rate than we do on savings accounts that permit you to withdraw some or all of your money whenever you want. Sometimes we offer CDs at very attractive initial rates. Of course you can cash in your CD at the end of the stated term, but here’s the thing; we know that a lot of people will just automatically renew the CD at the new current rate, which will be way less attractive than the initial rate. Some customers will renew and renew again, often without thinking about it. We love indecision and procrastination. This allows us to borrow your money at a nice discount. We know how to make inertia work for us.
We have developed and evolved lots of other ways to make money too. Here’s some of the other ways we are able to make so much money: