There’s a difference between being frugal and being cheap. Here’s what you need to know.
Bank spread is a money term you need to understand. Here’s what it means.
What is a bank spread?
Bank spread is the difference between the interest rate that a bank charges a borrower and the interest rate a bank pays a depositor. Also called the net interest spread, the bank spread is a percentage that tells someone how much money the bank earns versus how much it gives out.
A bank earns money from interest it receives on loans and other assets, and it pays out money to customers who make deposits into interest-bearing accounts. The ratio of money it receives to money it pays out is called the bank spread.
The bank spread can indicate a bank’s profit margin. A high spread equates to a higher profit margin, since the difference between interest earned and interest paid out is high.
However, bank spread measures the average difference between lending and borrowing interest rates, not the amount of banking activity itself, which means that bank spread doesn’t necessarily indicate a financial institution’s profitability.
If you invest money in a certificate of deposit (CD), you can start earning interest for yourself.
Bank spread example
Consider a bank that lends money to customers at an average rate of 8 percent. At the same time, the interest rate the bank pays on funds that customers deposit into their personal accounts is 1 percent. The net interest spread of that financial institution would be 8 percent minus 1 percent, resulting in a bank spread of 7 percent.
More From Bankrate
5 min read Oct 07, 2022
Knowing bank holiday schedules can help you avoid delays on necessary transactions.3 min read Oct 06, 2022
If you’re looking for a new bank here’s how to transfer accounts and avoid problems.4 min read Oct 06, 2022
Find out who is affected most by financial stress by statistic and how to cope.8 min read Oct 05, 2022
Keeping track of bills and payments can be difficult, here’s how to make it easier.3 min read Oct 04, 2022
Walk away with stacks of cash just for opening a checking or savings account.12 min read Oct 03, 2022
ATMs are useful for depositing money, checking your balance, and more, but be aware of possible issues that may arise.3 min read Sep 29, 2022
Sending money to another country can be a quick, easy and safe process. Read to find out the various ways you can utilize and how to transfer money internationally.5 min read Sep 29, 2022
Digital banking has been steadily on the rise, making it easy to access your accounts and manage your personal finances from anywhere.11 min read Sep 28, 2022