The Two Ways Banks Make Money
Banks look at you and ask one question: can we make money on your money, or do we need to make money from you?
Once you see this, a lot of confusing things about financial services start to make sense.
If you have $100,000 in a savings account, the bank pays you maybe 3.5% interest. If some or all of your deposit is sitting in a checking account, they pay you basically nothing. In either case, they use your deposit as cheap funding — to make loans and buy investments that earn meaningfully more than they pay you. You’re profitable just by existing. They don’t need to charge you anything.
This is why rich people get fee waivers and humans who answer the phone. The math works. A big account generates enough margin that the bank can afford to be nice.
If you have $800, the math doesn’t work. The spread is maybe a handful of dollars (or a few dozen) a year. So banks invented a different game: fees.
Overdraft fees. Maintenance fees. Minimum balance fees. ATM fees. The list is long. When the percentage game fails, every transaction becomes a chance to extract a few dollars.
The stated reason is that small accounts “cost money to service.” Processing a direct deposit costs very little per transaction. Running a debit card costs very little per swipe. The infrastructure already exists.
What you’re really paying for is everything else. Thousands of employees. Executive salaries. Private bankers for the wealthy clients. Marble lobbies. Fraud losses. Decades of technical debt.
Banks could run leaner. The technology exists to make basic accounts nearly free to operate. They don’t bother because fees cover the inefficiency. Why fix what you can charge for?
A $35 overdraft fee is about 0.0035% of a millionaire’s account. It’s 4% of an $800 paycheck. Same mistake. Wildly different consequence.
The banking industry collected $5.3 Billion dollars in overdraft and insufficient funds fees in 2023. And it’s concentrated. A small minority of poorer customers pay 90% of those fees. That’s not a bug. It’s the system working as designed. This persists for two reasons.
First, it’s not illegal. Bank lobbyists make sure of that.
Second, we’ve internalized a cruel idea: that being poor is a moral failing. If you overdrafted, you should have “managed better.” The fee feels like a consequence of your choices, not a penalty for having no margin.
We don't think this way about rich people. When a wealthy person's assistant botches a wire transfer, no one suggests they deserved to lose money. And we certainly don't think this way about banks themselves. When they make mistakes—catastrophic ones, systemic ones—they get bailouts, not lectures about personal responsibility.
The same people who already don't have enough money, who are collectively paying banks $5+ billion dollars a year in a 'poor tax' are also paying the highest percentage of their income to federal taxes to bail out the banks that charge them fees.
Banks could choose differently. They could absorb small overdrafts the way they absorb costs for premium clients. They could lower executive pay packages and stop charging overdraft fees. They don’t because they’ve never had to.
Until recently.
In the last decade, neobanks figured out how to serve “unprofitable” customers without charging fees. The trick was interchange.
When you swipe your debit card, the merchant pays a processing fee. Part of that fee flows to whoever issued the card. It’s small per transaction, but it adds up. If enough people spend on your cards, you can build a business without touching their balances or punishing their mistakes.
This is why fee-free checking for non-wealthy customers became viable at scale.
I spent three years as a product manager at Chime and watched this work. We served people who were accustomed to being scammed by their debit card provider. We made money doing it. Not by trapping them, but by building something they wanted to use because it's a fair deal.
Not all neobanks got this right. Some found ways to sneak fees back in, or push predatory credit products. The interchange model has its own problems. But it proved the old way wasn’t the only way. The banks that said otherwise were lying.
When a bank charges you a fee, it’s not because they have to. It’s because they’ve decided you’re on the wrong side of the line. When a fintech offers free services, it’s not generosity. It’s a different model. Some models are better aligned with the interests of the customer.
The status quo—where having less money means paying more for basic services—isn’t natural. It’s not necessary. It’s choices, protected by lobbyists, rationalized by a culture that blames poor people for being poor.
The first step is seeing it clearly. The second is building alternatives that prove it doesn't have to work this way.