How much do bank owners make?
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What are the costs involved in opening a bank?
The costs are significant, since the banking industry is the most regulated industry in the country. Banks generally need between $12 to $20 million in starting capital. If you start a local community bank, you might be able to raise that money locally. Otherwise, you may have to solicit investors.
Once the capital is raised, you must apply to regulatory agencies. Regulators are strict in their review of applications since the financial crisis. Once you’re approved, you may open up your bank.
What are the ongoing expenses for a bank?
Ongoing expenses vary. However, in general, expenses are 15% of non-interest expenses, with a median expense across the country of about $400,000 per branch.
How Much Money Do Bankers Make?
Bankers, usually known as loan officers, process loans for home buyers, small-business owners and corporations. Mortgage loan officers may specialize in either commercial or consumer loans. While most bankers market their lending services through ads or consumer leads, some may obtain listings of prospective home buyers from real estate companies. They all work to get the lowest available interest rates for consumers or businesses.
Bankers earn salaries averaging slightly over $76,200 annually according to 2019 salary data provided by the U.S. Bureau of Labor Statistics. Keep reading to learn more about the salary of a banker and contributing factors.
Salary of a Banker
The average annual salary of bankers was $76,200 as of May 2019, according to the BLS. Those in the top 10 percent can make over $132,680 annually. Bankers making the lowest wages earned below $32,560. Factors like state, industry, experience and commission structures ultimately contribute to the actual salary of a banker.
Qualifications for Bankers
The minimum requirements for a banker are a high school diploma, and working knowledge of general business accounting and reading financial statements. Commercial loan officers usually need bachelor’s degrees in business, finance or economics. Mortgage bankers must be licensed through the Nationwide Mortgage Licensing System & Registry.
Bankers usually train on the job over several months. Other essential requirements are initiative, decision-making, selling and interpersonal skills.
Banker Salary by State
In 2019, bankers earned the highest salaries of $103,040 in New York, according to the BLS. They also earned relatively high salaries in Massachusetts and Hawaii, at $91,460 and $87,750 per year, respectively. Bankers in Missouri and Oregon earned salaries closer to the national average – $77,980 and $76,510, respectively. Those in Louisiana made considerably less, at $56,630 annually.
Contributing Factors for Banker Salaries
Bankers can earn commissions on top of their salaries as they process more loans. They also earn more in New York City and Los Angeles because living and housing costs are higher in those cities. For example, a loan officer earning $70,000 in Louisville, Ky., must make $190,889 in New York City to enjoy the same living standard, according to the cost of living calculator from CNN Money. That same person would need to earn $110,921 in Los Angeles.
Job Outlook for Bankers
The BLS projects a 3 percent increase in jobs for loan officers – or bankers – in the next decade, much on par with the 4 percent national average for all jobs. While this is a relatively average growth rate, bankers should find more jobs available as people and businesses demand loans. These professionals may also find more jobs with significant banking experience as well as client referrals.
How Banks and Credit Unions Make Money?
Banks offer numerous “free” services like savings accounts and free checking. In fact, they may even pay you for leaving money in the bank, and you can also boost your earnings by using certificates of deposit (CD) and money market accounts. Most banks and credit unions, other than those that are exclusively online, also have physical locations staffed by employees. They also run call centers with extended customer service hours.
How do they pay for all of those services? Banks earn revenue from investments (or borrowing and lending), account fees, and additional financial services. Whenever you give money to a financial institution, it’s essential to understand its business model and exactly how much they charge. But it’s not always clear how banks get paid. There are several ways for banks to earn revenue, including investing customers’ money and charging fees.
How Much Money Do Bank Managers Earn?
Modern banks are tremendously complex operations. Even smaller banks and savings and loans do much more than take deposits and make loans. Twenty-first-century banks offer a wide variety of financial services, from credit cards to mortgages to financial planning and retirement accounts, managing all of these operations takes a great deal of experience and expertise.
Although some bank managers come to the industry from other financial industry backgrounds and learn on the job, most have been in the banking industry for a decade or longer, working their way up from teller or loan officer. This is why bank managers earn top salaries.
Education
An undergraduate degree in business or finance is the minimum educational qualification to be a bank manager. Many bank managers are earning master’s degrees in finance, economics or business administration. A growing number of bank managers also opt to undertake financial industry certifications such as becoming a Chartered Financial Analyst (CFA). Almost all bank managers will have at least five years of experience, and many will have worked in the industry for a decade or longer.
Job Description
Responsibilities of bank managers vary based on the particular job. Managers of a branch of a major bank may have fewer responsibilities than managers of a stand-alone local bank. Typical bank manager job duties include making hiring decisions and supervising senior employees, preparing financial statements and other reports, monitoring disclosure and compliance requirements and making plans for expansion or acquisitions.
Day-to-day life for bank managers is varied but includes elements of management, training and meeting customer needs. For instance, a bank manager might start the day with security checks, then move on to management meetings, branch meetings and company updates. Later in the day, the schedule could include branch policy training, regional calls, customer meetings and bank closing activities.
Median Salary
Bank managers earned a median salary of $129,890 per year as of 2019, according to the Bureau of Labor Statistics. The top 10 percent of bank managers enjoyed a median salary of more than $208,000 a year, while the bottom 10 percent earned less than $68,370 a year. Managers earn significantly more than managers in other occupations, given that management positions as a whole took home an annual median salary of $105,660 as of May 2019.
Bank Manager Pay by City
Managers in the New York City area came out on top of the pay list, with an annual median salary of $208,770. Those living in the San Francisco metro area also did very well, earning a median salary of $182,190 a year. Bank managers working in the Washington, D.C. area were in the middle of the pack at $174,180, while those in Minneapolis-St. Paul enjoyed a median salary of $144,060.
Job Prospects
Job prospects for bank managers are strong, with growth of 16 percent expected through 2028. This is much faster than in other industries, due to a growing economy, globalization and a continued emphasis on risk management in the financial services industry.
How Do Banks Make Money?
Have you ever wondered why your checking account is free? Obviously, it’s not because your bank is feeling charitable. Big banks make big money. The kind of money that leads to the obscene Wall Street bonuses we so often hear about. But banks make money even when they’re not involved in Wall Street’s multinational investment deals and billion-dollar hedge funds. Old fashioned “retail banking” (i.e., taking deposits and making loans) is quite a business by itself.
Banks are never short of come-ons for winning new customers; some banks offer new depositors free checks, cash bonuses or iPods (just to name a few).
That’s because banks can’t make money until they have your money.
A Penny Saved Is a Penny Lent
Remember those days when ING Direct and other high yield savings accounts offered interest rates of 5% or more? I used to stash cash into those accounts like crazy and think: “How could banks be handing out money like that?”
It all ties back to the fundamental way banks make money: Banks use depositors’ money to make loans. The amount of interest the banks collect on the loans is greater than the amount of interest they pay to customers with savings accounts—and the difference is the banks’ profit.
For example: You currently have an emergency fund of $10,000 in a high yield savings account that may pay 1.50% APY. The bank uses that money to fund someone’s:
- Mortgage at 5.50% APR
- Student loan at 6.65% APR
- Credit card at 16.99% APR
Your bank may have paid you $150 in a year’s time but they earned hundreds or thousands more from the interest on loans (made possible with your money). Now, think about this process repeated with millions of banking customers and billions of dollars.
Fees, Fees, Fees
Yes, banks make a lot of money banks from charging borrowers interest, but the fees banks change are just as lucrative.
- Account fees. Some typical financial products that charge fees are checking accounts, investment accounts, and credit cards. These fees are said to be for “maintenances purposes” even though maintaining these accounts costs banks relatively little.
- ATM fees. There will be times when you can’t find your bank’s ATM and you must settle for another ATM just to get some cash. Well, that’s probably going to cost you $3. Such situations happen all the time and just mean more money for banks.
- Penalty charges. Banks love to slap on a penalty fee for something a customer’s mishaps. It could a credit card payment that you sent in at 5:05PM. It could be a check written for an amount that was one penny over what you had in your checking account. Whatever it may be, expect to pay a late fee or a notorious overdraft fee or between $25 and $40. It sucks for customers, but the banks are having a blast.
- Commissions. Most banks will have investment divisions that often function as full-service brokerages. Of course, their commission fees for making trades are higher than most discount brokers.
- Application fees. Whenever a prospective borrower applies for a loan (especially a home loan) many banks charge a loan origination or application fee. And, they can take the liberty of including this fee amount into the principal of your loan—which means you’ll pay interest on it too! (So if your loan application fee is $100 and your bank rolls it into a 30-year mortgage at 5% APR, you’ll pay $94.40 in interest just on the $100 fee).
Recently, banks are taking a lot of heat for interest rate hikes and fees going out of control. Giving banks business may seem like putting yourself in harm’s way, but of course, it still beats hiding your money under a mattress. Understand how banks work, however, and you’ll know where to lookout for fees and how to avoid lining banks’ pockets by paying more interest than you’re earning.
About the Author: Simon is a recent college grad living in Brooklyn. He writes for an interest rate-tracking Website and maintains his own personal finance blog, the Realm of Prosperity.
