What is Spread Bancário? Simple explanation

Q: What is Spread Bancário?

The spread bancário is the difference between the value that a bank pays to borrow money and the value that it charges to lend the same money. This means that banks make money from the difference between these two rates.

What is Bank Spread?

The bank spread is one of the main sources of profit for banks. It is calculated as the difference between the interest rate that the bank pays to borrow money (capture rate) and the interest rate that the bank charges to lend the same money (loan rate).

How does Bank Spread work?

Imagine you deposit $270 (approximately $200) into a savings account. The bank may pay an interest rate of 0.5% per month for you to have the money there. This means the bank will pay $1.35 in interest per month (0.5% of $270). Now, imagine the bank lends this same money to someone else, charging an interest rate of 2.0% per month. The bank will make $5.40 in interest per month (2.0% of $270). The difference between these two rates is the bank spread, which in this case is 1.5% (2.0% - 0.5%).

Practical Examples

Let’s consider some examples to better understand how the bank spread works:

Example 1: You deposit $1,350 (approximately $1,000) into a savings account with an interest rate of 0.5% per month. The bank pays $6.75 in interest per month. If the bank lends this money to someone else at an interest rate of 2.0% per month, it will make $27.00 in interest per month. The bank spread is 1.5% (2.0% - 0.5%).
Example 2: You take out a loan of $2,700 (approximately $2,000) with an interest rate of 3.0% per month. The bank charges $81.00 in interest per month. If the bank paid 1.0% interest to obtain this money, the bank spread is 2.0% (3.0% - 1.0%).

Comparative Table

The table below illustrates how the bank spread varies with different interest rates:

Interest Rate Paid	Interest Rate Charged	Bank Spread
0.5%	2.0%	1.5%
1.0%	3.0%	2.0%
0.2%	1.5%	1.3%

This table shows how the bank spread increases when the difference between the interest rate paid and the interest rate charged increases.

Importance of Bank Spread

The bank spread is fundamental to understanding how banks profit from financial operations. It helps explain why the interest you pay on a loan is generally higher than the interest you earn on a savings account. Additionally, the bank spread can vary significantly between different financial institutions, making it important to compare rates before making financial decisions.