General Question

elbanditoroso's avatar

Is there a way to know how much $$ the bank earned from my deposit?

Asked by elbanditoroso (33145points) 1 month ago

Not what I earned, but what the bank earned.

Here’s what I mean:

Let’s say that I buy a CD at Joe’s Bank for $100,000 for a one year period at a rate of 5.5%. I will earn $5,500 next March.

The bank takes my $100,000 and uses it to make loans to other people. That’s how banking works.

If the bank uses it for mortgage loans, they might charge 6.9% or so.

If a car loan, anywhere from 6% to 10%.

If a construction loan, 6 to 10%.

And personal loans, 8% to 35% depending on a lot factors.

Here’s my question: My CD enabled the bank to loan money for some purpose, and still pay me my $5500 interest in a year. Is there a way to know how much the bank made after making the loan and paying me back?

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9 Answers

Tropical_Willie's avatar

SWAG.

Look at their annual report, should have deposits and revenue.

Kropotkin's avatar

“The bank takes my $100,000 and uses it to make loans to other people. That’s how banking works.”

Not exactly. Banks create new money when making loans to borrowers.

Source: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf

It holds true for the USA.

“Here’s my question: My CD enabled the bank to loan money for some purpose, and still pay me my $5500 interest in a year. Is there a way to know how much the bank made after making the loan and paying me back?”

There is not, because the bank’s ability to make loans isn’t strictly limited by your savings deposit.

Blackwater_Park's avatar

Find out what your bank’s cash/reserve ratio is.

gorillapaws's avatar

As @Tropical_Willie pointed out, If it’s a publicly traded bank, they will publish their annual 10-K for example if I search for “Chase 10-K 2023” I find This document. Buried in there should be the info needed to calculate their actual mean APR return on the money used for loans from depositors. You’d also need to calculate the money multiplier as @Kropotkin is referring to. For example if they’re required to hold 10% of reserves, then a $1000 deposit, becomes $900 in loans.

You could then estimate how much money your deposit was used to generate in loans and what the return dollar amount would have been.

Kropotkin's avatar

@gorillapaws It’s even better than that. The required reserve ratio since 2020 is 0%.

gorillapaws's avatar

@Kropotkin That’s crazy. I didn’t realize that. I imagine some of the banks are reserving something though, right? so you’d need to still factor in what they are reserving even if they’re not legally obligated to determine their actual percent loaned out.

Kropotkin's avatar

@gorillapaws Yes, I think for practical operational reasons, they all still have reserves.

I presume the policy to reduce the ratio to 0% was to encourage more lending at a lower cost to counter the slowdown during the pandemic, and it’s been maintained since.

Blackwater_Park's avatar

That’s no shit, it really is zero but all it means is that banks don’t incur a penalty anymore if their reserve rate falls below 10% 10%was crazy enough and we have been there quite a while. This was indeed done to encourage more lending.

kritiper's avatar

Why might it matter to you? What the bank does and how much money they make is their business. And they are in business to make money…

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