How do banks make money?

Have you ever thought how banks generate revenue? This seems to be a very puzzling question. In simpler terms the banks make use of your money to make more money. The basic functions of a bank are to collect savings of individuals, firms etc and maintaining them safely and issuing loans to the public. When you deposit money in a bank the bank pays you interest for using your money. Let’s say you open a FD in a bank for a term of 5 years and let’s assume the bank pays you 6% interest. If you want to buy something and if you are running short of money you may have to secure a loan from a commercial bank. The interest rate for loans vary accordingly for the purpose they are issued and they are usually higher than the interest rate you get when you make a deposit in the bank. Let’s assume that the bank charges you 10% interest for the loan you have obtained. So a person who deposits money earns 6% interest while a person who borrows money will have to pay 10% interest. The extra 4% explains the earnings of the bank.Banks also charge customers for various facilities they provide such as electronic transaction, cash withdrawal, cash transfer etc.There is something called as fixed rate and floating rate interest that the bank charges while issuing a loan. The floating rate interest implies that the interest rate fluctuates depending upon the various economic factors and government policies. So people should be aware about the floating rate system before obtaining a loan.