How Fee-Free Banking Works

A fee-free bank is bank that doesn’t charge its customers fees, and earns its money through other means. But why do some banks charge fees and others don’t?

Let’s take a look at the ways banks make money. While this won’t cover how some banks make money through less common banking services—such as wealth management—it will cover the basic ways banks make money through their core services: checking and saving accounts.

How banks make money

Banks make money from bank accounts in three ways:

  • Net interest margin
  • Interchange
  • Fees

What is net interest margin?

Banks use the money in customer bank accounts to make loans for other customers. When banks loan money out, they collect interest on these loans. The small amount of interest customers receive on their bank balances each month is an incentive for them to deposit more money, thus allowing the bank to loan out more of it. The net interest margin is the rest of the money collected as interest on a loan; it’s kept by the bank.

What is interchange?

Interchange is a fee that’s charged to stores every time you buy something with your debit or credit card. If you’ve ever encountered a minimum purchase requirement for using your card at a particular store, it’s because of the interchange fee the store pays. Most of the fee goes to the consumer’s bank while a smaller cut goes to the store’s bank and the card companies.


We all know bank fees. ATM fees, overdraft fees, minimum balance fees, and many more fees. Fees aren’t something your bank has to charge you—it’s whatever they decide. Before you sign up with a bank, make sure you read the fine print to see what fees they charge so that you’re not caught by surprise.

Some fees may not even be charged by the bank or banking services themselves. For example, Visa charges an International Service Assessment (ISA) fee of up to 1% on card transactions with international merchants. Again, just be sure to read the fine print when it comes to fees.

Why do some banks charge fees while others don’t?

While making money off of the net interest margin and interchange are commonplace for most banks, fees are big business, and can account for around 5-20% of their income. Banks with no fees do exist—they just make money off of interchange and the net interest margin only, and work to increase their revenue by growing their customer base.

Benefits of fee-free banking

By choosing a fee-free banking institution, you won’t have to worry about in-network ATM fees, overdraft fees, or minimum balance fees ever again. For many fee-free banking services, you also won’t have to worry about an account maintenance fee, a transfer fee, an account closing fee, or a card replacement fee.

Fee-free banking with Simple

Looking for fee-free banking? Try Simple. Simple was founded on the idea that people should feel confident about their money, and to feel confident with money, you have to know what’s coming in and what’s going out, easily.

We’re not a bank, we’re a technology company that provides online banking services, and partners with an FDIC-insured bank, BBVA Compass. And no, we don’t charge fees. Want to know more? Check out our customer stories and reviews. Ready to get going? Sign up at the link below.

Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this page: Any outbound links in this post will take you away from, to external sites in the wilds of the internet; neither Simple nor our partner bank, BBVA Compass, endorse any linked-to websites. This page is intended to be informational only.