What Banks Actually Do With Your Money

You deposit $10,000 in your bank account.

Where does that money go?

Most people think it sits in a vault somewhere, waiting for them to withdraw it. Maybe earning a little interest. Safe and sound.

That’s not what happens.

Your money disappears the moment you deposit it.

And what the bank does next is going to make you rethink everything you know about money.

The Magic Trick

Here’s what really happens when you deposit $10,000:

Step 1: You give the bank $10,000 in cash
Step 2: The bank credits your account: “Balance: $10,000”
Step 3: The bank keeps $1,000 as “reserves”
Step 4: The bank lends out $9,000 to other people

Your $10,000 just became $19,000 in the banking system.

You have $10,000 (on paper, in your account)
Someone else has $9,000 (actual cash the bank lent them)

Total money in the system: $19,000
Actual money that existed: $10,000

The bank created $9,000 out of thin air.

This is called fractional reserve banking. And it’s completely legal.

The Shell Game Continues

But wait—it gets crazier.

The person who borrowed that $9,000? They’re probably going to deposit it in a bank too.

Step 5: Borrower deposits $9,000 in their bank
Step 6: That bank keeps $900 as reserves
Step 7: That bank lends out $8,100 to another person

Now we have:

• You: $10,000 (on paper)
• First borrower: $9,000 (on paper, but they spent the cash)
• Second borrower: $8,100 (actual cash)

Total money in accounts: $27,100
Original money that existed: $10,000

The banking system created $17,100 from your $10,000 deposit.

This process continues until your original $10,000 creates approximately $100,000 in total loans throughout the banking system.

One deposit. Ten times the money.

This is how banks create money. Not print it—create it through lending.

The Interest Collection Machine

Now here’s how banks get rich from this magic trick.

Your $10,000:

• You earn: 0.5% = $50 per year

The $90,000 in loans created from your deposit:

• Credit cards: $20,000 at 22% = $4,400 per year
• Auto loans: $30,000 at 6% = $1,800 per year
• Business loans: $25,000 at 8% = $2,000 per year
• Personal loans: $15,000 at 12% = $1,800 per year

Total interest earned by banking system: $10,000 per year Total interest paid to you: $50 per year

The bank earns $10,000 annually from your $10,000 deposit. You earn $50.

They make 200 times more than you from your own money.

The “Your Money” Illusion

Remember that $10,000 balance in your account?

It’s not actually there.

Your account balance is just an IOU from the bank. A promise that they’ll give you $10,000 if you ask for it.

But the actual $10,000? It’s been lent to other people.

This creates a fundamental problem: What if everyone wants their money back at the same time?

Answer: The bank doesn’t have it.

This is called a bank run. And when it happens, banks collapse.

The Great Depression Example

During the Great Depression, 38% of American banks failed.

Not because they made bad investments. Not because they were poorly managed.

Because depositors figured out the shell game.

When people realized their money wasn’t actually there, they rushed to withdraw it. But the banks had lent most of it out. They couldn’t return money that no longer existed.

4,000 banks went bankrupt. Millions of people lost their life savings.

The government created the FDIC to restore confidence. Now your deposits are “insured” up to $250,000.

But here’s the problem: The FDIC doesn’t have enough money to cover all deposits either.

In 2008, the FDIC ran out of money and had to borrow from the U.S. Treasury. The insurance fund that’s supposed to protect your money went bankrupt.

Your “guaranteed” deposits are backed by an organization that can’t guarantee them.

The Inflation Connection

Remember how inflation destroys your purchasing power?

Banks cause inflation.

Every time banks create money through lending, they increase the total money supply. More money chasing the same amount of goods = higher prices.

Here’s the cycle:

1. You deposit $10,000
2. Banks create $90,000 in new loans
3. $100,000 in new money enters the economy
4. Prices rise to absorb the new money
5. Your original $10,000 buys less than before

You provided the capital for banks to create inflation that reduces your purchasing power.

You’re literally paying them to make your money worth less.

The Business Model Revealed

Let’s be clear about what business banks are really in:

Banks are not in the business of safekeeping your money.
Banks are in the business of using your money to create more money for themselves.

The bank business model:

1. Gather deposits from people who think they’re saving money
2. Create new money through fractional reserve lending
3. Collect interest on money they created from nothing
4. Pay tiny interest to depositors to keep them happy
5. Keep the spread as profit

You think you’re a customer. In reality, you’re the product.

Your deposits are the raw material banks use to manufacture money out of thin air.

The Numbers Don’t Lie

Let’s look at how this works for a typical bank:

Wells Fargo (2023 numbers):

• Total deposits: $1.4 trillion
• Total loans: $1.0 trillion
• Interest paid to depositors: $17 billion (1.2% average)
• Interest earned on loans: $44 billion (4.4% average)
• Net interest income: $27 billion

Wells Fargo made $27 billion from the spread between what they pay depositors and what they charge borrowers.

They used your deposits as free raw material to manufacture $27 billion in profit.

And remember—most of the money they lent out didn’t exist until they created it through the fractional reserve system.

The Credit Card Goldmine

Want to see the bank business model in its purest form?

Credit cards.

When you use a credit card, the bank doesn’t give you existing money. They create new money and charge you 18-29% interest on money that never existed before you borrowed it.

Example:

• You charge $5,000 on a credit card
• Bank creates $5,000 in new money
• Bank charges you 22% interest = $1,100 per year
• Bank earns $1,100 annually on money they created from nothing

The money didn’t exist. They didn’t lend you someone else’s savings. They typed numbers into a computer and charged you interest on the numbers.

This is the most profitable business model in human history:

1. Create money from nothing
2. Charge interest on money you created
3. If borrower doesn’t pay, seize their actual assets

Banks literally print money and charge you rent on it.

The Insurance Company Parallel

Insurance companies understand this game too.

When you pay insurance premiums, where does that money go?

Not into a vault waiting for your claim.

Insurance companies immediately invest your premiums in stocks, bonds, real estate, and business loans. They keep the investment profits.

Example:

• You pay $2,000 in auto insurance premiums
• Insurance company invests $2,000 at 6% return
• Insurance company earns $120 per year from your premium
• You get protection. They get investment profits.

Insurance companies have figured out how to use your money to make themselves wealthy while providing you service.

Sound familiar?

The Real Reason They Want Your Money

Banks offer free checking, free ATMs, convenient locations, and mobile apps not because they like you.

They offer these services because your deposits are worth far more to them than these services cost.

Your $10,000 deposit generates $10,000+ in annual interest income for the banking system through fractional reserve lending.

The “free” services cost them maybe $50 per year to provide.

They make $10,000. They spend $50 on services.
Net profit from your deposit: $9,950 per year.

That’s a 19,900% return on their service investment.

No wonder they’re happy to give you free checking.

The Wealthy Know This

Wealthy families don’t keep large amounts of money in bank accounts.

Why?

Because they understand that cash sitting in banks makes banks wealthy, not depositors.

Instead, wealthy families:

• Buy assets that appreciate faster than inflation
• Invest in businesses they control
• Use debt to purchase appreciating assets while keeping cash working
• Become the bank instead of feeding the bank

They understand that the banking business is incredibly profitable—so profitable that they want to be on the ownership side, not the customer side.

The Question You Should Be Asking

Now that you understand how banks really make money, a question should be obvious:

What if you could be the bank instead of the customer?

What if you could:

• Build your own capitalized banking system — one backed by real reserves, not fractional ones
• Earn the interest instead of paying it
• Keep the spreads instead of giving them away
• Control your own access to capital instead of being the raw material for someone else’s system

Life insurance companies operate on a fundamentally different model than banks. Where banks keep a fraction of your deposits on hand and lend out the rest, mutual life insurance companies maintain solvency ratios north of 108% — meaning they hold more in reserves than they owe. Your capital is actually there.

What if there was a way to flip the script so that you profit from the banking function instead of banks profiting from you?

Most people never ask this question because they’ve never seen how the banking business really works.

They think banks are there to help them save money.

Banks are there to use your money to make themselves wealthy.

But what if you could use the same principles that make banks wealthy to make yourself wealthy?

What if you could become your own bank?

The Next Revelation

Before we explore that possibility, you need to understand one more thing.

Your retirement planning is broken.

Not just inefficient. Not just suboptimal.

Fundamentally broken.

Because no one has ever asked you the most important question about retirement:

“What’s your banking strategy?”

We’ll explore that question next.

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This is educational content only and not meant to serve as financial advice. Individual results may vary. Consider consulting with a qualified financial professional before making any major financial decisions.