Fact or Fiction: Can banks lend out money held in your Current Account?

EltonJohnFan

Hi all,

I've just had a debate with a good friend of mine who's telling me that if you keep money in your Current Account then your bank can't lend it out and that is why they're so keen for you to sign up for Savings Accounts and Bonds etc. Can you tell me if this is true or not? I have never heard of anything like this so I'm a little bit sceptical but my friend is really adamant they're correct so I had to ask this question just to be sure, thank you

Linton

Your friend is confused. Of course banks lend out money from your current account - that's how banks make a living, borrow from some people and lend to others at a higher rate.

The reason why banks like savings and fixed rate term accounts is that you are unlikely to take the money out in the short term. Long term money is worth more to them than money that can disappear at any time.

shaun_from_Africa

Banks can and do lend out money held in any account.

It's not like the old days where any money deposited in a bank was physically held in thir vault. Nowadays it's pretty much all "electronic" cash, and I doubt very much if any bank actually has enough hard currency to pay off all the account holders if they walked in and demanded to close their account.

Lokolo

However just to go on, they must keep a certain % in liquid assets, which I think at the moment is 2%, but it is rising to 7% (I think thats the jist of it anyway!)

Masomnia

When you put money in the bank it's not like they're looking after it for you, rather you become a lender to the bank. What account the money is in is irrelevant as it just goes towards the total pot that they are able to lend out.

Masomnia

shaun_from_Africa wrote: »

Banks can and do lend out money held in any account.

It's not like the old days where any money deposited in a bank was physically held in thir vault. Nowadays it's pretty much all "electronic" cash, and I doubt very much if any bank actually has enough hard currency to pay off all the account holders if they walked in and demanded to close their account.

True, but that's because there's no difference between physical currency and the 'electronic money' on the bank's screen.

shaun_from_Africa

What account the money is in is irrelevant as it just goes towards the total pot that they are able to lend out

I must have a word with my bank manager.
Despite me being a loyal customer for 30 years, he's never offered me any pot

pqrdef

EltonJohnFan wrote: »

your bank can't lend it out

I'm wondering what else they could do with it. Put it in the bank?

dealer_wins

pqrdef wrote: »

I'm wondering what else they could do with it. Put it in the bank?

They do believe it or not. They lend each other billions of pounds!!