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DON’T BANK WITH YOUR CREDITORS

Most people think that when they deposit their money in the bank or credit union, either in a checking or savings account, that the money is sitting in a lock box with their name on it, readily accessible at any time. The reality, however, is somewhat different. When you deposit your money in the bank, the cash does not in fact sit in a lock box with your name on it. The bank uses that money to make loans to other customers. After all, that’s how the bank makes money, loaning it out and charging interest. Where do they get the money to do that? From you of course, with the money you have deposited.

So let’s say for example that you deposit $1,000.00 in your checking account at Trusty Bank. Let’s assume that the checking account pays .25 interest. You have in effect loaned the bank $1,000.00 at a very low interest rate. They will then use your money to make a loan to someone else at a much higher interest rate. The difference between the interest rate they pay you and the interest rate they charge on the money they loan out (your money) is their profit.

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