Bank Basics: How Banks Make Money 

Introduction: Banks Are Not Magicians

Many people think banks make money by “magic.”
In reality, banks make money by doing very simple things repeatedly and at scale.

The good news?
👉 You can use the same ideas banks use to build wealth as an investor, even with small money.

Let’s break it down in simple terms.

1. What Is a Bank (In Simple Words)?

A bank is a business that:

• Collects money from people (savings, deposits)

  
  

• Lends that money out at a higher interest rate

• Keeps the difference as profit

This difference is referred to as the interest spread.

📌 Example:

• The bank collects money from you at 2–5%

• Bank lends it out at 18–30%

• The bank keeps the difference

2. How Nigerian Banks Make Their Money

A. Interest on Loans (Main Source)

Banks lend money to:

• Individuals (personal loans)

• Businesses

• Government (T-bills, bonds)

📌 Example:
Zenith Bank gives a business loan at 25% interest.

How You Can Copy This

• Invest in Treasury Bills

• Invest in FG Bonds

• Invest in Money Market Funds

You are lending money just like banks do — but with less risk.

B. Fees & Charges

Banks earn from:

• SMS alerts

  
  

• Transfer fees

• Card maintenance fees

• Account maintenance

📌 Small amounts × millions of users = big profit

How You Can Copy This

• Invest in companies that earn recurring fees

  • Banks (Zenith, GTCO)

  • Telecoms (MTN)

  • Fintech-related stocks

You earn through dividends and price growth.

C. Investing Depositors’ Money

Banks don’t keep your money idle.
They invest in:

• Treasury Bills

• Government Bonds

• Commercial Papers

📌 This is why banks still make money even during hard times.

How You Can Copy This

• Put spare cash into Money Market Funds

• Short-term Commercial Papers

• Fixed income funds

You earn a daily or quarterly income just like banks.

D. Foreign Exchange (FX) & Treasury Activities

Banks make money by:

• Buying and selling FX

• Trading bonds and securities

How You Can Copy This

• Invest in USD funds

• Buy foreign stocks & ETFs

• Hold part of your money in dollars

This helps protect you from the depreciation of the naira.

3. Why Banks Are Always Profitable

Banks follow strict rules:

• They think long-term

• They manage risk carefully

• They earn small percentages consistently

• They avoid emotional decisions

📌 Banks don’t chase “quick money.”

4. Investor vs Poor Mindset (Using Banks as an Example)

To build wealth, think like a bank, not like a gambler.

6. Practical Ways to Invest Like a Bank (Nigeria)

Beginner Level

• Money Market Fund

• Treasury Bills

• Dividend stocks (Zenith, GTCO)

Intermediate Level

• FG Bonds

• Commercial Papers

• Balanced Mutual Funds

Advanced Level

• USD investments

• Dividend ETFs

• Real estate income

6 Student & Salary Earner Example

Let’s say you earn ₦50,000 monthly:

• ₦10,000 → Money Market Fund

• ₦5,000 → Dividend stock

• ₦5,000 → Treasury Bills (when available)

Over time:

• Your money earns interest

• You receive dividends

• Your capital grows

📌 That’s exactly how banks grow.

7. The Big Lesson

Banks don’t:
❌ Guess
❌ Rush
❌ Gamble

They:
✅ Lend safely
✅ Earn interest
✅ Collect fees
✅ Reinvest profits

If you copy these principles as an investor, wealth becomes predictable.

Final Thought

You don’t need to own a bank to invest like one.

Start small.
Be consistent.
Let time and compounding do the work.

The richest people don’t work harder, they make money work harder.