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Why is a bank willing to protect your money for free or for a low cost?

2 Answers

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The bank can invest your money and make money for itself 
User Perepm
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Answer:

The banking system uses your money to earn more money.

Step-by-step explanation:

For example, if you deposit $1,000 in your savings account, and the required reserve ratio is 10%, the bank can lend up to 90% of the money you deposited ($900) to another client. That other client usually uses the money he/she received to purchase something. That person that received the $900 payment will usually deposit most of the money into a bank (maybe the same or another bank), and the bank will take that money and lend it again to someone else.

This is called bank money creation and can be calculated through the money multiplier = 1 / reserve ratio. In this case the money multiplier = 1/10% = 10, so for every dollar deposited in a bank, the banking system will create 10 more dollars and earn money from it.

User Bob Baxley
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