How banks work

Training 315 minuteshow banks work

You are 23, deliver parcels as a courier and earn $1,500 a month. Your employer needs a bank account for payroll. A relative, a former bank teller, promises to show you the catch.

Training goal: Make the bank work for you, not the other way round

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Situation

1. Two account options: "Premium" at $12 a month with 0.5% cashback, and a basic one with no monthly fee.

Premium, sounds more solid
The basic no-fee account
Take the pay in cash

2. The bank offers "overdraft protection": payments go through even with no money, at $35 each time.

Decline and set a low-balance alert under $50
Sign up, just in case
Sign up, but watch the balance

3. Your relative asks: "Know where the bank gets the money for your interest?" You have $1,000 in reserve.

Keep it all on the payroll card
Keep the reserve in a kitchen jar
Move the $1,000 to a 4% savings account

4. At the branch a manager pitches an "investment product" with returns up to 15%. Entry fee 3%.

Sign, it is a bank after all
Take the contract home and count every fee
Put in half as a test

What you will learn

Banks earn on the rate spread and on fees.
A $35 overdraft turns coffee into a luxury: use balance alerts.
A bank manager sells products. Take contracts home and count the fees.

Your real-life step

Open 3 months of statements and add up every bank fee. Decide which to drop.

Questions and answers

How do banks make money?

Mostly on the rate spread: they take deposits at a low rate and lend at a higher one. Also on fees for accounts, cards and transfers.

What is an overdraft?

It lets your account go below zero. The bank covers the shortfall but charges a flat fee or interest.

What happens to my money if a bank fails?

In many countries deposits are insured by the state up to a limit. Spread amounts above the limit across banks.

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Numbers are illustrative. A game, not financial advice.