Banks make money on the spread — the difference between what they pay you for deposits and what they charge borrowers. Your savings account pays 0.5%. The bank lends that "money" (actually creates new money) at 7% for a mortgage or 24% for a credit card. The spread is their profit.

But it's even better than that: because of fractional reserve banking, the bank doesn't need your deposit to lend. Your deposit gives them a slight reserve cushion, but the lending (and the profit) would happen regardless. You're providing cheap funding that the bank marks up dramatically — while taking on the inflation risk of holding cash.

APR vs APY: APR (Annual Percentage Rate) is the simple interest rate. APY (Annual Percentage Yield) includes compounding. A credit card with 24% APR actually costs more than 24% per year because interest compounds on unpaid interest. Banks advertise savings APY (sounds higher due to compounding) and loan APR (sounds lower without compounding). Same math, different framing — always to their advantage.

High-yield savings accounts (4-5% in current rate environments) are better than traditional savings (0.01-0.5%), but still often trail inflation after taxes. They're the least bad option for emergency funds — not a wealth-building strategy.

Banks generate approximately $30-35 billion annually in overdraft and insufficient funds fees. The average overdraft fee is $35 for a transaction that might be $5. This is an effective APR of over 17,000% on a two-week overdraft of a $5 purchase.

Overdraft "protection" is marketed as a service. It's a profit center. Banks process transactions largest-to-smallest specifically to maximize overdraft fees — one large transaction that overdrafts your account triggers fees on all subsequent smaller transactions that day. This ordering was the subject of multiple class-action lawsuits.

The overdraft system disproportionately affects low-income customers — 80% of overdraft fees are paid by 9% of account holders, primarily those with low balances and irregular income. The system extracts the most money from those who can least afford it.

Defense: opt out of overdraft "protection" (transactions will simply be declined), set up balance alerts, and use a bank or credit union that has eliminated or capped overdraft fees (many have since regulatory pressure increased).