Banks won’t survive without our trust. The whole system functions on a promise to keep our money safe and to give it back to us when needed. Keeping your money in the secure financial institution sounds so much safer than under the mattress in your apartment. The question is, are your money really safe especially now when the whole world is experiencing the strongest economical tsunami? How do banks really work?
The basic idea is that we deposit our money into banks with an illusion that your money is untouched and much safer than at home. After all, chances of your house being robbed are much higher than the bankruptcy of the bank (or so it was until now!).
In reality, though, under the promise to return the money the bank gives loans to individuals, businesses and other banks. By charging the loaner interest rates, the banks earn profits. You, as a depositor, receive the smallest portion of those profits – interests. Speaking of interests, it is also called the price of money because this is what banks pay to us (depositors) to keep our trust.
So theoretically speaking, at the time of global doom that we are facing in financial world, is it possible that at some point the bank might not have your money at all? After all, banks are allowed to credit more than they have! Plus, almost all of us trust banks unconditionally hoping for a protection of our income. Banks continue to function because the depositors usually don’t ask for all of their money at the same time. That way bank freely uses the money for mortgages, loans and other form of credits.
What scares me the most is seeing banks fail. Imagine if majority of people around the world would panic and withdraw their savings. On the second thought, I would probably do the same. Look at all the banks which are struggling to survive! How do you know that your bank is safe? And even if your money is safe, would you be able to get it out if you want to? Your credit card is not going to work when the bank is down! Imagine ending up without any cash at all!!!!
As a forex trader, I am struggling to figure out how to keep my trading profits and other savings safe during the credit crunch! Witnessing many businesses going down and banks sinking, did it cross your mind to buy a safe and keeping the money at home?!
If buying a safe has crossed your mind, you are definitely not the only one. Did you know that the top-notch safe manufacturers report a 25% increase in sales of the secure safes that can be installed in your home. And that is just the beginning. The fear of meltdown is giving the results. It wouldn’t surprise me that more and more people will turn to safes instead of banks and keep their savings locked at home.
You and see it, as well as I do – there is a sign of panic among us. We all want to protect what we have. Not that money is the most important thing in life, but without a penny you are butt naked on a street. This is not a good picture, especially if you have a family to take care of.
Let’s be honest, some countries cannot guarantee all the bank deposits. In my opinion, some won’t be able to borrow enough to make even half of the bank assets. And what is the solution? Bankrupcy is in the air. This is, indeed, a pure state panic.
Let’s of course not forget that some of your savings are covered by the Financial Services Compensation Scheme, so my advice is to either spread your savings in different banks (that way you can get compensation, instead of loosing a big portion your money in case of a bankruptcy) or buy a safe!