your saving in the bank not yours

Banks get richer when you save money. But not just that, they get richer in an unfair but legal way. They use your saved money to expand the money they make and they share little or nothing with you. There is a law or rule that banks in most countries use today where they are only obliged to keep or hold a fraction of the money you give them. They can lend out the rest with sizable interest and give you little or nothing on your savings. The moment you put your money in the bank, it ceases to be yours. If you ask for it in a way that is not convenient for the bank, they will not give it to you. And that is perfectly legal.

The purpose of this piece is to show you what really happens, how it works, and what you should do instead of blindly saving money in the bank.

Understanding Fractional Reserve

This concept is known as Fractional Reserve Banking. And it is a system whereby the bank only keeps a fraction of your deposit. The rest of it, they can lend out even before you walk out of the bank.

Now, you may be thinking that that is how banks are supposed to work. But this is where it gets crazier. Aside from the bank being able to lend out a large percentage of the money you leave with them, they are also able to lend out more than that amount. It is so ridiculous that it amounts to money printing. And this is legal.

It is as bad as if you save 10 rupees with the bank, they can lend out 100 rupees based on your 10 rupees. Then they get, let’s say a 10% interest on the rupees 100. They give you the depositor a 1% interest. Can you see those margins?

This may not mean much to you if your savings is not substantial. But if you have 6-figures sitting down in one account for a long time, you should be concerned. And not concerned that the bank is making more money than you. That is not the problem. The problem is that your money is getting devalued by the actions of the bank day by day. So, if your huge amount of money is not in an appreciating asset, you are holding the losing end of the stick.

And if you have ever gone to the bank to withdraw a huge amount of money, this will dawn on you. I recently went to a bank to withdraw a significant amount in cash and I was told I could not. It wasn’t the bank, it was the law. The law states that I cannot collect that much cash at once. And it is my money. This is why you should understand this now.