Fee-based income
There are many different types of fees banks can collect, both on the commercial banking and investment banking sides of the business. Here's a rundown of some of the most common fee categories:
- Overdraft or returned item fees: Banks typically assess a charge if a transaction makes a customer's account go into the negative or if it is rejected due to lack of funds. The typical overdraft fee can be as much as $35 as of 2025, but banks have been under pressure to lower these in recent years.
- Monthly account fees: With checking accounts in particular, it's common for a modest monthly fee to be assessed. There is usually a way for account holders to avoid the fee, such as by setting up direct deposit. This type of fee is common with branch-based bank accounts but not with online banks.
- Interchange fees: Interchange fees are typically charged when customers use a bank's credit or debit card to make a purchase -- but it's the merchant's bank that pays it, not you. Let's say that you have a Bank of America (BAC -0.51%) credit card and use it to make a purchase at a retail store. The retailer's bank must pay an interchange fee to the bank that issued the card -- in this case, Bank of America.
- Loan fees: Banks often charge origination fees when making loans. For example, it's not uncommon to pay an origination fee of $1,000 or more for a personal loan or a large loan such as a mortgage.
- Other account fees: When you look at a checking or savings account's fee schedule, there is probably a list of services you could be charged for. In addition to those already discussed, common fees include non-bank ATM withdrawal fees, international debit card transaction fees, fees for money orders and cashier's checks, and wire transfer fees.
- Investment banking fees: Banks that have investment banking operations make money from the advisory fees they charge to clients. For example, if a company wants to go public and complete an IPO, an investment bank would get advisory fees for facilitating the process and advising the company on the best course of action.
Interest income
When it comes to interest income, net interest margin is the primary revenue generator. Net interest margin, or NIM, refers to the spread between the interest income banks take in on loans and the interest the bank pays for deposits after the bank's costs are accounted for. For example, if a bank has a $100 million loan portfolio and its net income from those loans is $2 million, it has a net interest margin of 2%.
Net interest margins depend on a few factors, such as the efficiency of the particular banking institution and the various types of lending the bank specializes in.
For example, credit card loans tend to have higher interest rates (and more risk) than mortgages and auto loans. They also depend on the interest rates the bank pays on deposits.
Not all banks make money in both ways
Many banks are purely commercial and don't have investment banking operations.
This is quite common among regional and local banks, but there are some large banks that operate mainly like savings-and-loan institutions. US Bancorp (USB -1.66%) is one example of a large bank that avoids investment banking. Wells Fargo (WFC -1.46%) has some investment banking operations, but commercial banking accounts for a greater percentage of its revenue than the other U.S. mega-banks.
On the other hand, some banks focus on investment banking. It's rare to find a pure investment bank these days, but Goldman Sachs (GS +0.77%) and Morgan Stanley (MS +1.87%) are the two largest financial institutions that mainly focus on the investment banking side of the business.
Finally, many of the larger banks employ a fairly even mix of both types. These are sometimes known as universal banks and include such large institutions as JPMorgan Chase (JPM +0.68%), Bank of America, and Citigroup (C +0.56%), just to name some of the best-known ones.
The bottom line is that there are many different ways a bank can make money, but each institution is different and will generate revenue in different ways.
