The primary way banks earn profit from deposits is by:

• A. Charging high overdraft fees
• B. Generating revenue from foreign exchange
• C. Lending deposited funds at higher interest rates than they pay on deposits
• D. Investing in unregulated assets

Answer: (C)

Banks earn most from the interest rate spread: they pay depositors a certain rate for their money, then lend that money out at higher rates. The difference between what they charge borrowers and what they pay depositors is net interest income, the main profit source tied to deposits. Fees from overdrafts or services and earnings from other activities exist, but they’re not the primary mechanism driving profits from deposits.