Money Basics · Banks, FDs & savings

How banks actually make money off you

When you deposit ₹10,000 in your savings account, the bank doesn't lock it in a vault. They lend most of it out, to other people for home loans, car loans, business loans.

Here's the math that pays for those glass office towers:

• They pay you 3% interest on your savings
• They charge a home-loan borrower 8.5% interest
• They keep the 5.5% spread. Times every ₹ in their system.

That's the entire business. Take money cheap from depositors, lend it expensive to borrowers.

The RBI mandates that banks keep a portion of deposits (the Cash Reserve Ratio, currently 3%) actually as cash, and another portion in safe assets (Statutory Liquidity Ratio, 18%). The remaining ~79% can be loaned out, and the RBI moves both dials, so that share moves with them.

So if 100 customers each deposit ₹10,000 (₹10 lakh total), the bank can technically lend out ~₹7.9 lakh.

What does this mean for you?

1. Your savings account is paying you the lowest rate the bank can get away with. Don't park serious money there.

2. Banks are heavily regulated for a reason, if everyone wanted their deposits back at once (a bank run), the bank wouldn't have it.

3. DICGC (deposit insurance) covers up to ₹5L per depositor per bank. Above that, you're trusting the bank.

Which raises the obvious question: if the bank pays you as little as it can get away with, why do two people at the same bank earn completely different interest? That starts with the account type you were handed on day one.

Takeaway. A savings account is the bank making money off you, not the other way around.