Obviously showing my age, growing up in an era of mutuals and building societies. Where does the money come from to pay the interest on my savings then?
It's a bit complicated, but under fractional reserve banking, a bank can borrow 10 million pounds (for example) from another bank at a ridiculously low rate called the LIBOR rate (London inter bank operating rate although this has just changed to the SOFR , secured overnight financial rate)
The borrowing bank can then lend (or invest) that money up to 8 times its value (the fraction from fractional reserve banking) and charge everyone its lending to a far higher rate than it originally borrowed at.
So they borrow £10 million and on the strength of that, they can lend £80million
And then charge interest on the £80 million even though £70million never even existed.
(It's all to do with the calculated risk of defaulting)
You have to understand that banks don't deal with money, they deal with RISK
That's why it's often so hard to qualify for high loans and mortgages.
The real crazy fucked up thing is that the original £10million that was borrowed never actually existed, it was part of the £80 million pounds that the lending bank was allowed to carry on its books when IT originally borrowed £10million from someone else previously!!!
So in banking, there is a theoretical unending supply of money. Banks are only kept in check by inflation rates and interest rates, which, if they get out of hand leads to lenders defaulting and the banks RISK getting too high.
So for banks the question is, how greedy can we be without our RISK becoming too high
As for savers, well the banks don't give a shiny rats shit for savers, the banks offer that service at a loss, as they are legally obliged to do in order to be called banks, and then be allowed access to the inter bank lending rates, and be able to operate under the fractional reserve banking process.
That's very simplistic but I hope it helps.
