When we live our lives
"Why do savings banks have higher interest rates than banks?"
I'm sure you've thought about this before. (Of course you may not have.)
If you look at the Internet, savings banks, Saemaul Geumgo, and credit cooperative deposit products often give much higher interest rates than banks
There are many reasons for this, but the main reason is how banks find money.
When people have money, they don't carry it inconveniently in cash and leave it at the bank.
It's a very wise choice. This is because it is more advantageous to leave it in the bank because there is no interest in holding cash.
We often say we leave money in the bank, but we actually lent it to the bank. That's why banks are paying interest to customers and using that money to lend to other customers to earn profits.
If two financial institutions, such as savings banks and Saemaul Geumgo, give the same interest as banks, who will leave the money?
As you may have heard in the news, the main source of income for the banking industry is the loan-to-deposit margin (NIM in similar expressions) Ida.
The loan-to-deposit margin refers to the margin (revenue) generated by the difference between the deposit interest rate and the loan interest rate, and banks mainly make money from it and run the company.
2 Financial institutions also have to make money by lending, but after all, the only thing that can discriminate against banks is high interest rates.
In the end, by giving high interest rates to deposit customers, they can borrow money from customers and lend it to other customers.
If the deposit interest rate is 10%, you have to borrow at least 10% to leave a loan-to-deposit margin with other customers
In fact, if you want to run a bank, you have to pay employees' salaries, pay building rent, and there are many places where money can be spent.
Not only that, but if you lend money to 100 people, there are only about 98 people who pay back well, and two people cannot pay back.
Regardless of how much they don't receive from the two, the bank must also make up for the losses of the two who failed to repay the 98 people who paid the rest of the money well.
In the end, if the bank borrows the customer's money at 10 percent (if it has been deposited), it must borrow money from other customers at least 15 percent interest rate.
But will all customers get the same interest rate?
No, as I said earlier, two people either know or can't pay back the money.
Therefore, banks conduct their own screening to distinguish between those who pay back the money well and those who don't, but no matter how elaborate the screening is, it is impossible to know.
Therefore, they do not lend money to people who are likely to be unable to pay it back, or in slightly ambiguous cases, they receive high interest rates (risk hedging) to compensate for the risk.
It is very natural in terms of market logic, but it is difficult to understand it as a human heart.
"Why do you get paid more by someone who's in trouble and in need???"
Since financial markets do not move only by feelings of seal, they eventually intervene in public institutions (such as the government) to help those in need by providing interest or issuing guarantees.
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