How Do Banks Make Money? (And How You Can Copy Them)

I used to love playing video games. Sometimes, when I wanted an easier game, I would sit there finding cheat codes. This blog is exactly like that, but for real life.

If you find this useful, I would greatly appreciate it if you shared and subscribed.

Keep in mind: I am young (28), but I will share hard facts. As Bruce Lee says, "take what is useful and discard what is not." You can't change your circumstances, but you can change yourself.

The Question Most People Never Ask

A friend of mine (let's call him Client 6) wanted to make money passively. The standard advice he got was: "Put your money in a savings account" or "Buy an index fund for 7% returns."

That advice is playing the game on Hard Mode.

I was walking through Westfield at Shepherds Bush when I realized the secret lies in a simple question: How do banks make money?

If you understand their business model, you stop being a customer and start being a competitor.

The Banking Business Model Explained

Most people think banks are just safe vaults for cash. They aren't. Banks are businesses that buy and sell money.

So, how do banks make money? They rely on three main pillars, but one is the "Cheat Code" we care about.

The Mechanism:

Banks "buy" money from you (depositors) by paying you a tiny interest rate (e.g., 1%). They then "sell" that same money to borrowers (mortgages, loans) at a much higher rate (e.g., 7% - 15%).

They keep the difference. This is called Arbitrage.

The "Spread" In Action

Let's look at the math.

The bank is making a 7% spread using your money, while taking almost zero risk because the loan is often secured against an asset (like a house or car).

How to "Be The Bank"

Once I understood how banks make money, I realized I didn't need to be a bank to use their strategy. I just needed to copy the Arbitrage model.

The Goal: Access capital at a low cost and lend it out at a high return.

I connected with a contact in the property world who offered Property-Backed Loan Notes. These are financial instruments where investors lend capital to developers (to build rooftop extensions or renovations) in exchange for a fixed return—often 8% to 12%.

Why haven't you heard of this?

Because High Street banks don't sell it. They use it. They take your money, lend it to developers, keep the 8%, and give you 1%.

The "Personal Arbitrage" Strategy

Here is how you can apply the banking model to your own finances:

Strategy A: The Cash Switch (Beginner)

Take the cash sitting in a low-interest bank account (losing value to inflation) and move it into a secured lending opportunity.

Strategy B: The Leverage Play (Advanced)

This is exactly what banks do.

Summary: The Numbers

Below is a breakdown of potential returns I found with this specific strategy compared to leaving money in the bank.

Feature

The Bank's Way

The Cheat Code Way

Who makes the profit?

The Bank (Shareholders)

You (The Investor)

Return on Capital

~2% (Savings)

~8-12% (Lending)

Underlying Asset

Loans/Mortgages

Property Development

Effort

Passive

Passive

Final Thoughts

This post isn't sponsored, but I managed to negotiate an extra 1% return on the first year if you decide to try his services. It’s a thank you to my readers. (Use code: MrCheatCODES).

If you want the full brochure and due diligence pack on how to execute this, mention it in the comments and I will email you the details.

Don't just ask "how do banks make money"—ask "how can I do it too?"

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