How does the bank profit off of escrow accounts?

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.