> They get half the interchange fees on every transaction. That's the benefit, worth MUCH more than "interest" (which is only at 0.01 percent at the moment). The other half of the fee goes to Bancorp.
They have a lot of costs for that interchange fee though. That's not where banks make they money and the .01% interest you mention is what they pay, not what they would earn if they actually held your deposits. If they held your deposits and worked like a regular bank it would be dramatically more profitable: $10,000 in your account means they would owe you $1 a year in interest. They could simply park that about anywhere else and make a decent amount, but banks really make their money by leveraging.
Sort of. If an individual bank has $30M on deposit, then they only have $30M to lend to mortgage borrowers. In order to be able to have $30M in deposit they must have investors invest $3M into the bank (i.e. Tier One Capital must be ~10% of deposits). If this were a real life example this fictional bank would have to borrow from their local federal reserve bank to cover any daily cash flow needs (e.g. Customers withdrew more money from their savings accounts then they deposited in one day).
They have a lot of costs for that interchange fee though. That's not where banks make they money and the .01% interest you mention is what they pay, not what they would earn if they actually held your deposits. If they held your deposits and worked like a regular bank it would be dramatically more profitable: $10,000 in your account means they would owe you $1 a year in interest. They could simply park that about anywhere else and make a decent amount, but banks really make their money by leveraging.