Aside from possible service fees that cover administrative and insurance costs, banks do not make a direct profit from typical bank accounts, including most savings, checking and escrow accounts. Instead, financial institutions use the federally-insured deposits they hold to make personal and commercial loans to the community. A bank's primary source of income is the interest earned on the lines of credit and loans they issue.

Most escrow accounts managed by commercial banking centers are similar to other deposit accounts the institution offers. An escrow account may be a transaction between two outside parties, such as a rental deposit, or it may be an impound account attached to a mortgage loan. In the first instance, a one-time deposit is made into the account and typically remains in the bank for at least a year. Impound accounts are typically funded each month and are paid out annually to cover homeowners' insurance and property taxes.

In addition to money earned from loan interest charges, banks have a variety of other ways to accumulate profits. Investment banking products are popular among Individuals and business clients. A number of banks also handle trade transactions. Convenience products, such as overdraft protection or insurance, usually come with a fee as well, accounting for a portion of the bank's profits. Service charges, penalties and maintenance costs also bring in profits. Individuals should review the bank's fee schedule to determine any hidden costs that may be associated with maintaining an escrow account. Relevant fees are the only direct way banks make a profit from escrow accounts, and fees vary depending on the financial institution.

  1. Do FHA loans require escrow accounts?

    Here's why FHA mortgages require escrow accounts for property taxes, homeowners insurance and mortgage insurance premiums ... Read Answer >>
  2. How do you calculate payback period using Excel?

    Understand the various fees that can be assessed on a personal or business checking account, and learn methods to avoid being ... Read Answer >>
  3. What are The Nine Major Financial Institutions?

    There are nine major types of financial institutions. Understand these major types of financial institutions that exist in ... Read Answer >>
  4. How does the deposit multiplier affect a bank's profitability?

    Find out how a deposit multiplier affects bank profitability, how it increases the supply of money in the economy and why ... Read Answer >>
  5. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
Related Articles
  1. Personal Finance

    Understanding the Escrow Process

    Everything you need to know about the escrow process, an interim stage of buying or selling a home.
  2. Personal Finance

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  3. Personal Finance

    Retail Banking vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking refers to the aspect of banking that deals with corporate customers. Check out more on the differences between ...
  4. Personal Finance

    The 5 Best Alternatives to Bank Saving Accounts

    Find out about some of the most profitable available alternatives to depositing money in a traditional bank passbook savings account.
  5. Investing

    A Guide to Bank Accounts

    Find out which type of bank account suits your specific needs.
  6. Personal Finance

    10 Bank Promotions That Pay You To Open An Account

    Find out which banks are running cash promotions this summer.
  7. Tech

    The Pros And Cons Of Internet Banks

    Learn how internet banking services stack up against their brick-and-mortar peers. Find out what internet banks have to offer and where they fall short.
  8. Personal Finance

    5 Bank Fees You May Not Know About

    Banking regulations have recently changed and fees are following suit.
  9. Personal Finance

    Which Banks Pay the Highest Interest Rates on Savings Accounts?

    Online banks offer the best savings account interest rates. Not all banks offer the same features, so it pays to read the fine print.
  1. Escrow Agreement

    An escrow agreement is the legal document outlining the terms ...
  2. Bulk Sales Escrow

    A type of escrow agreement placed on the sale of inventory, business ...
  3. Escrowed To Maturity

    The condition of a bond that has been repaid in advance by means ...
  4. Checking Account

    A checking account is a deposit account at a financial institution ...
  5. Commercial Bank

    A commercial bank is a type of financial institution that accepts ...
  6. Money Market Account

    A money market account is an interest-bearing account that typically ...
Trading Center