Bank Earnings on the currency exchangePosted on: May 5, 2020, by : cashadmme
Remember, in the 90s there were “money changers” at every corner, offering to exchange currency at a better rate than at the bank. They could be found at banks, near markets, train stations and in crowded places. Those days are long gone, but occasionally they can still be found. They earned decent money. Now banks have almost completely taken over the exchange function. The beauty is that the size of the profit does not depend on the exchange rate. It doesn’t matter how much the dollar costs today and how much it will cost in a month. The euro rises or falls, the bank does not care. The bank’s income depends on the volume of operations and the spread . Spread is the difference between the purchase and sale price. For the most popular currencies (dollar, euro) – the difference is usually 1-3 rubles.It seems to be a bit. But let’s see it from a different angle.
The dollar exchange rate at Sberbank was as follows:
- purchase – 57.84 rubles;
- sale – 60.96.
The difference is 3.12 rubles. And this is 5.4%.
We get that for one currency exchange operation the bank will earn more than 5 percent of the transaction amount. Considering that for the month the same amount can be scrolled several times (bought-sold-bought-sold, etc.) we get the exchange income of tens of percent per month. Compare with the rate at Sberbank on the deposit – about 6% per year !!! With a sharp increase (or fall) in the exchange rate, the bank is insured and increases the spread several times. A typical picture could be observed in 2014-2015. The foreign currency spread in banks reached 10-15 rubles, or 15-20%.
Banking on Gold and coins
Selling precious bullion, commemorative and investment coins is another way to earn a small profit. The bank acts as a seller, receiving commissions from sales. Separately, it may be noted OMS (depersonalized metal accounts):
The process resembles a currency exchange. Only as an asset are world quotes for precious metals. The client does not purchase physical gold, but receives a document confirming the acquisition. In fact, neither the bank nor you have anything in stock. If, for example, you bought 1 gram of gold at 1300 rubles per gram, and in a year its value will increase to 1500 – theoretically you will earn 200 rubles. In practice, due to the difference between buying and selling, real profit will be almost two to three times lower. The spread for OMS is 4-8%. And we need a very significant increase in quotes, so that the client makes a significant profit. This is what banks use. Attract funds to the CHI and dispose of it at their discretion. By giving the client in return not physical metal bullion, but a promise to pay money at the current rate at the client’s first request.
Banking fees and profits
The most preferred way for a banker to make a profit today is to charge commissions. The reason is quite simple: this type of income does not entail any risk. Credit payments can be overdue, while the commission will be paid in any case. Therefore, each bank considers it their duty to invent a great many of them.
- for maintaining an account;
- for cash withdrawals (from a credit card, using an ATM of another bank, over a certain amount);
- transfer fee (between customers of different banks, international transfers);
- payment of a loan service.
There are many options for commissions. A commercial bank requires payment of its services justifiably, but there are charges that the client is not aware of. For example, if you connect a mobile bank automatically when you receive a bank card. It is beneficial for the bank to increase the share of risk-free income in the total profit, therefore, in the future, more and more options for commissions will appear.