ELI5: How do banks make money?

Imagine banks are like giant lemonade stands for money.

• Deposits: You and your friends bring your allowance money to the lemonade stand (the bank) to keep it safe. This is called a deposit. The bank promises to give it back to you whenever you want.

• Loans: Now, your neighbor wants to buy a shiny new bicycle, but doesn't have enough money. The lemonade stand (bank) lets them borrow some of the money that you and your friends left there. This is called a loan.

• Interest: The neighbor has to promise to pay back more money than they borrowed. This extra money is like a thank you note, called interest. So, if they borrow $100, they might have to pay back $105.

• Profit: The bank gives you a tiny bit of interest for letting them use your money (the deposit). But they charge the neighbor a bigger chunk of interest for borrowing the money (the loan). The bank keeps the difference! This difference is how they make money.

• Fees: Sometimes, the bank also charges small fees for things like using an ATM that isn't their own, or if you don't have enough money in your account.

• Charging more interest on loans than they pay in interest on deposits.
• Charging fees for services.