How much profit does a bank make per annum on a typical retail bank deposit account?
It’s a simple question. What is the total revenue a bank generates from the average retail bank account – the costs? Do you know? Does your bank?
I’m not so sure, and it’s a conundrum that drives to the heart of the free bank model.
Banks generally calculate profit (P) based upon the amount of credit a customer takes, which generates margin (M) profit; along with the additional fees (F) charged due to unexpected overdrafts, withdrawals and exceptions; less the total cost of the retail operation divided by the number of deposit accounts (C).
In other words:
(M + F) – C = P
You would think it was that simple, but it’s not.