answersLogoWhite

0

The bank uses your deposited money to give out loans. They then use the interest on those loans to pay you a slightly smaller interest rate on your deposition, and skim 1-2% for their own profit. In short, when you put your money into a savings account, you are telling the bank to loan your money to qualified borrowers.

If a bank kept a 100% reserve, they would be unable to pay you any interest on your savings, and they would be unable to make any profit. You'd might as well just burying you savings in a hole in the back yard.

User Avatar

Wiki User

10y ago

Still curious? Ask our experts.

Chat with our AI personalities

RafaRafa
There's no fun in playing it safe. Why not try something a little unhinged?
Chat with Rafa
BeauBeau
You're doing better than you think!
Chat with Beau
ReneRene
Change my mind. I dare you.
Chat with Rene

Add your answer:

Earn +20 pts
Q: Why don't bank's hold 100 percent reserves?
Write your answer...
Submit
Still have questions?
magnify glass
imp