Banks are the biggest financial service institution, both government and private, that are responsible for many things and considered multipurpose. However, the basic function of a bank is to store money. So, this article will give you a brief account of banks and the answer to where do banks put their money.
1. What is the Purpose of Banks?
The bank is responsible for everything that involves money, whether it be a daily transaction involving deposits or withdrawals of cash or clearing of cheques. They withhold and look after the money you deposit in that particular bank branch. They provide you with facilities like Internet Banking & ATM cards to pay for things online. Furthermore, they also provide loans, interests, and mortgages for different requirements like business, property, vehicle, or gold. Also, they help with a fixed deposit for future investments and even offer customer care services.
2. What is the History of Banks?
During the early stages of society, there was no such concept as money or banks. People back then used to do transactions through barter system, where the trades were done in the form of objects. For example, if I wanted to buy a horse, I would go to a horse owner and ask him to trade his horse for my bag of rice. He might have negotiated or asked for something else, but the trade would soon have reached an agreement. However, the problems in this transaction are clear as the trader will not benefit from it.
Hence, silver was introduced as a part of the trading process. One pound of silver and one pound of gold were used to make a payment. Sometimes, people didn’t even require silver or gold but still, they were a viable option to use to buy something else. (See 14 Factors That Affect The Price of Gold)
Later, banks were introduced to the people. The government took control and initiative among the community to make banks an agreed-upon trader. As many people agreed to this decision, it came into the act.
3. Where do banks keep their money?
Banks have to deposit and withdraw a large sum of amount on a day-to-day basis. But where do banks put their money, once someone deposits it in the bank? Vaults have been around since the 1800s. In those days, robberies were common since gold was mainly deposited and kept in a small vault. However, as time went on, the vault became more and more secure to the point we are at now. Hence, this is the answer to where do banks put their money. (See How much money is in the world?)
4. Why you should not rob a bank?
Nowadays, robbing a bank won’t be as profitable as it may seem. It is because the banks are only allowed to have a particular sum of amount in their vaults. This amount is usually in thousands and never in millions, depending upon the transaction rate. It is the deposit and withdrawal rate of the bank since the bank might need to process the money out in case an amount is demanded by the customer. These transactions can increase during the month of a holiday or decrease in case of financial or global security or a nationwide emergency.
5. What happens with your deposited money?
When you deposit your money, it is credited to your account on a computer and it is shown as your money. You might wonder where do banks put their money when they exceed their withheld limit? When the bank is about to reach its withheld limit, the amount is transferred to the Federal Reserve. Federal Reserve is the bank of all banks. In very few and rare cases, when a huge amount is required by a bank, it is given by the Federal Reserve to the bank. These situations only happen once or twice in a decade. (See Who invented money?)
6. What is its association with the Government?
Banks are a financial form of business for the government. They are not just a transactional trade anymore. It is because when you give a sum of money to the bank, you are duly charged with taxes, interests, and rates set by the government. These taxes are based on your net worth that is known to the banks because of your liabilities and assets stored with them.
According to the law, the government can impose a tax on an overvalued asset, or the money that is not accounted for. Government can even seize anything as their property if you are found doing fraud or hiding black money.
7. What are the Problems of a banking institution?
We now know that how, why, and where do banks keep their money. The problem is that banks not only store the money in a physical mode but also, charge exchange rates, interest rates, and transactional fees. Moreover, banks are tethered by the government. Moreover, bank frauds have become extremely regular and common. (Also read Why do countries devalue their currency?)
8. What does the Rise of Cryptocurrency entail?
Because of the various problems in the banking system, cryptocurrency has started to take over. Nowadays, everyone has heard about Bitcoin, which is popular among the 4000 cryptocurrencies available. Many people believe that cryptocurrency is a virtual set of codes running through a secure network chain such as Blockchain. It is assumed to be the next form of withdrawal and deposit, where banks will be a part of history. Cryptocurrency has several benefits.
- The first major advantage is that it is decentralized. Every transactional ledger has its copies spread over multiple computers, which is termed mining. Thus, people who do mining are called miners. So, if anyone tries to commit fraud, he has to do that on every single mining computer.
- Moreover, cryptocurrency is an open traceable transaction, so you don’t have to go through the whole paperwork.
- Only a simple internet connection is required to transact money from one place to another within a matter of seconds. Thereby, it also eliminates the needs of banks, government, and associated infrastructure, since everything is stored on a computer in the form of virtual digital assets.