Yesterday I gave a bit of insight on what your financial institutions do with your money, and today we’re going to dig a little deeper into banks.

If you’ll remember my electronics store analogy, I mentioned some of their profits are used to make their systems more efficient and serve you better. Sometimes that means upgrading their point of sale systems, sometimes that means expanding their company by outsourcing services that make them more of a "one stop shop" - like a tech bench to fix things for you right at the store.

ATMs, contrary to popular belief, are actually one such outsourced service. They’re more like soda machines - a vendor approaches the establishment and proposes to put one at a location. The arrangements vary, but essentially the vendor gets paid by the bank, takes whatever additional fees they charge at the ATM, and if they don’t own the location they pay a space rental fee.

Sometimes these vendors work with multiple banks, and banks sometimes work with multiple vendors, making a network of ATMs for you to use. If you go outside your bank’s network, the vendor charges you additional money and so does the bank - the bank does it just because they can, and the vendor does it because they aren’t getting paid by your bank.

It’s way better than the old passbook system back in the 1900’s - but you’re still paying for this convenience. If your bank is really convenient, expect it to be more expensive to loan them your money. And that’s exactly what you’re doing, loaning your money to them, interest free.

Remember, you are not only their client, you are also their product. Your average minimum balance is their asset - just look at the good deals banks give for certain minimum balance accounts. Every dime you give them is used to buy more money. With the larger lump sum of all their accounts, they’re capable of securing loans in bulk and then reselling them, as well as investing in the world market.

…and yet they still nickel and dime you to death with fees, just because they can.

Well, that’s not an entirely fair statement. I mean, if you go below your minimum balance it does cost them, in a fashion. They are evaluated for loans and investments just like you are, based on their "income," or minimum balance and portfolio. Also they’re regulated so that they don’t overspend themselves. If they do, your accounts get frozen - how wonderful.

So essentially you give banks money to make more money, and they make access to your money more secure, efficient, and convenient. Anything above and beyond basic checking and savings accounts is just another way for them to make more money from your money. Such as providing loans - which I’ll get into tomorrow.