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Marupes Novads Travel on The difference between the interest they pay to their depositors and the interest they charge to lend out the money is called the spread, and it is how banks make their money. A typical passbook savings account, for example, might pay an interest rate of 2 percent. On the other hand, a bank might charge 6 percent for a home loan and 18 to 20 percent for an unsecured credit card loan. This spread is the banking equivalent of buy low, sell high.
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Banks buy deposits at a relatively low rate of interest and sell loans and credit at relatively high rates. Deposit funds (reserves) that are lent or invested can make a profit for the bank, but funds held by the bank do not. Therefore, consumer banks lend or invest all but a fraction of their deposits, which they keep on hand as vault cash or on deposit at a branch of the U.
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