$1,282 a Year: How Much Your Bank Account is Really Costing You

For most people, opening their first savings and checking accounts are moments of pride: They’re seen as the first step towards adulthood and financial independence. Opening your accounts is just something that you do: Even if you don’t really understand what you’re signing up for.

Case-in-point: Most Americans don’t really understand how banks make money, and this ignorance has allowed the big banks to profit at their expense for generations.

How Banks Make Money

Banks mainly make money in three ways:

• Net Interest Margin: Using their customers’ balances to make loans (at a profit) to other individuals and corporations.
• Interchange: Charging retailers a fee to process credit and debit transactions.
• Fees: Which are charged to customers for a number of reasons (more on this below).

The largest piece of banks’ profits comes from what’s called Net Interest Margin.

So what is Net Interest Margin? When customers deposit money into a checking or savings account, they give banks permission to use that money to originate loans for others. When these loans are originated, the bank makes money by earning interest off of said loan: To the tune of 4–8%, and sometimes more!

Banks earn even more money by charging their customers fees. How much do banks make by charging fees? Here are some of the big ones, according to a study conducted by Bankrate:

• $4.69 for out-of-network ATM withdrawals
• $33.38 for overdrafts
• $5–$10 for transfers
• $12 for monthly “maintenance”

You would think that all of this profit would mean that the banks would be willing to share with their customers, who ultimately make their entire business model possible by providing the capital that originates the loans. But you’d be wrong.

Even though banks can make 4–5% by originating loans, on average they only return 0.01% a year to their customers.

How Much Do Banks Profit Off of Each Customer?

Data from the 2013 Federal Reserve Survey of Consumer Finances tells us that the average U.S. household has a checking account balance of $9,132 and an average savings account balance of $33,766.49.

To find out how much money banks make from their customers, all we need to do is add together their checking and savings balances and multiply that by 3% (for conservative estimate):

$33,766.49 + $9,132.00 = $42,898.49

$42,898.49 x 3% = $1,286.95

So there you have it. Big banks can earn $1,286 (or more!) from each customer. And how much does the customer walk away with?

$42,898.49 x 0.01% = $4.29

That means that the average U.S. household is forfeiting $1,282 a year to banks in foregone interest. That’s not exactly fair now, is it?

To put that into perspective, let’s consider the following:

• The average U.S. broadband package costs $80 per month ($960/year), and for that money you gain access to the whole of human knowledge (through the internet).
• A Netflix subscription costs between $7.99 and $13.99 per month ($95.88–$167.88/year), and for that money you get nearly unlimited entertainment.
• An Amazon Prime subscription costs $119 per year, and for that money you gain unlimited free shipping and other benefits.
• The average American with student loans has a monthly payment of $351, and for that money they were able to earn a degree with the potential of kickstarting their career.

And what do you get for your $1,282 forfeited to banks each year? The privilege to…go down to a local branch of your bank during your lunch hour (because they’re only open from 9–5), stand in line for half an hour (because there are never enough tellers), and be glared at like a criminal by the ever-present security guards and cameras. What a deal.

How You Can Get More for Your Money

Here at Beam, we believe that customers deserve a fair share of the profit pie. That’s why all members of our community earn a minimum 2% a year, with the opportunity to earn up to 4% a year, all funds FDIC insured through an FDIC-insured bank. That’s also why we don’t charge our members any fees, ever.

Interested in learning more? Beam is currently in limited-feature Private Beta. Sign up for it here, and walk with us to change banking for the better.