‘Banker’. It’s difficult to think of any other job title that has been so universally vilified since the financial crisis in 2008. Roundly blamed for a ‘casino’ attitude to using other people’s money to line their own pockets, bankers have been the focus
of demonstrations around the globe and, if Mark Carney is to be believed, an on going regulatory approach aiming to ensure that banks will never again require public funds in the event that they become insolvent. So, with all this public backlash, ill-feeling
and general distrust towards bankers, why is it that a number of years on from the financial crisis, so many people continue to lend banks their
money for free and in many cases in order that those banks can use it and make a profit from it?
The inconvenient truth lies in the fact that inertia on the part of those very same people that profess to dislike bankers, provides part of the fuel that allows a bank to make the multi-million pound profits that they protest over. But to understand how we
need a simplistic recap on the way a bank works. When I was growing up, one could be forgiven for thinking that the role of a bank was to keep all the money it was given in a big underground vault. It seemed it would give some back to customers who popped
in to sit behind expansive desks and then spend the rest of its time trying to convince us that it was working hard on our behalf. In reality however, the vault of a modern bank isn’t stacked to the ceiling with used notes. Although a simplistic example, the
role of the modern bank is to borrow money as cheaply as it can and then to lend that same money on to someone who wishes to borrow it at a higher price and keep the difference. And the person they borrow that money from as cheaply as possible? Well, that’s
Savings, deposits, your hard earned post taxed money, call it what you will but when you send it to the bank you are legally lending it to them and it’s not going in the vault, it is being multiplied and lent to people you don’t know on terms you won’t be party
to and you trust you are going to get it back, or in the case where your deposit is less than £75k, you trust that the FSCS scheme is properly funded and working. To you, your deposits are your assets but ask a bank how they classify deposits and they will
talk about their liabilities – the borrowings they have to pay back. And, when you think about your savings in terms of a loan you are giving to the bank it brings a few interesting thoughts to mind. Whom am I lending the money to? What is the risk in lending
it to one bank over another? and, how much is the bank paying me to borrow my money? For many people who inertly leave their money sitting with the bank the answer to the last question is typically, not very much at all. After all, if you aren’t going to try
and lend it elsewhere why would the bank try harder to pay you more for it?
So what to do? Well, there are definitely ways of making sure that you have more control over the risks you take with your money and the rewards you receive. In a climate with low returns you need to be aware of how to maximize your efforts without giving away
too much of your valuable free-time in doing-so. We all spend hours reading the Sunday papers ‘best buy’ tables and scouring the web for the next top deal so maybe the answer is to find a tool which does this for you, rather than accepting what you are given
and leaving the fate of your funds in the hands of someone else.