Here's How Banks Earn Their Money

2. Accepting Deposits

Bank’s sources of funds, are primarily known to be deposits. People who put money into banks are called depositors. Banks encourage deposits by protecting the money and by paying the depositor interest.

Interest is a payout, a percentage of revenue earned on the principal over a period. The depositor thus earns some money from the deposits. Depositors are liability to banks and they are the sources for funds. 

3. The Interest

To earn a profit, a bank needs to pay less for the funds it receives from depositors than it earns on the loans it makes.  The difference between what a bank pays in interest and what it receives in interest is the spread, or net interest income.

The spread is not pure profit. The spread is income, or revenue, but banks incur a lot of other costs to get this income. To arrive at the figure for profit we need to deduct all such costs.