A finance blogger goes out for drinks at a Brooklyn bar with some guys who want to start a bank. Things get a little crazy: They start writing equations on napkins and come up with a way to figure out how much money you're worth to your bank.
Here's the answer:
Value = Fees + 2.5% * (savings + checking) + 1.7% * (debit card transactions)
That equation, courtesy of Mike Konczal and the guys at Bank Simple, shows that there are three basic ways that a bank makes money off you, the retail customer:
- The bank charges you fees. Pretty straightforward.
- The bank uses the money you've deposited in your savings and checking account, and lends it out at a higher interest rate. This is the classic banking business model.
- The bank charges a transaction fee to the stores where you use your debit card. This is why your bank was so eager to turn your plain-vanilla ATM card into a debit card. (The bank also makes money off your credit card transactions if you get your credit card through your bank.)
Konczal does the math for a hypothetical family making $60,000 a year that manages to avoid paying fees. He figures the family is worth just under $500 a year to the bank.