Who Owns the Money in My Bank Account?
Depositing into your bank account means that you entrust the bank with your money, subject to certain conditions. Primarily, banks are expected to pay interest on all the money that their clients deposit in their bank accounts, regardless of how low the rates may be. The banks have legal leeway to use your money in specific ways. The institutions make money by lending it to other people who need loans at higher rates. Based on this logic, is essential to consider the question of who owns the money deposited in a bank account.
💰Demand Deposit
Although banks get a legal mandate to keep the money from their depositors, they need to provide ways for their customers to access at least part of the money. Banks get into exceptional arrangements with their clients regarding the issue of the extent to which customers can access their deposits. For example, if one deposits $100M into a bank account today, it may not be practicable for the person to approach the bank the next day and ask to withdraw all the money. That the truth- because banks always use the funds for other purposes.
One of the methods banks use to solve this problem is using the concept of a demand deposit. The term demand deposit refers to the amount of money that banks can avail of the immediate and on-demand withdrawal of their clients. In other words, when banks collect deposits from all their customers, they are obliged to set aside a small amount of the money to address the need for urgent withdrawals from their clients. Thus, the use of demand deposit makes it easy for depositors to access at least part of their money without necessarily having to notify their banks in advance.
🏦Time Deposit
Second, banks use the concept of time deposit to give their clients access to the money that they hold. The essence of the idea of time deposits is that customers can provide their banks with an agreed-upon amount of money and then let the banks invest the funds in high-gain financial products. Depositors then agree to the terms that they shall access the funds after a fixed period. Under such an arrangement, the banks are supposed to pay their depositors the principal amount of the deposit and some interest.
Banks can pay higher interest for time deposits than they do for demand deposits because they have the time and freedom to invest the money in profitable ventures. Therefore, as much as banks make all the money that they can use your deposits, it is easy for them to give you back your deposit and the agreed upon amount of interest earned.
It is important to point out that although typically, the use of time deposits means that one’s money is locked in an account for a fixed period, it is possible for clients to negotiate with banks. In some cases, clients can agree with their banks to a limited level of liquidity. In this case, the customers have an obligation to forego a certain percentage of the interest associated with the full length of the time deposit.
Deposits of the Future
💱How Traditional Banks Make Money?
When you go to the branch and put money on the account, it's become a deposit. Simultaneously you agree to lend the money to the bank, in several cases (saving accounts), it can be mutually beneficial. The bank uses this money to make their revenue, by landing the money to the next borrower, maybe yourself, with their rate. And don’t forget about customer service and document drafting fee. Borrow at 0.02% and lend at 4.35%, for example.
It’s a pretty nice scheme if you think about it. The financial institution with a bank license legally have the rights to make money with your money and motivate you to keep on account more money. That why banks are always offering incentives for additional deposits to savings accounts. And, this helps to explain why traditional banks are able to afford the nicest buildings of any business.
💸Can a Bank Take My Money?
The question of whether a bank can take your money is one of the most intriguing ones in the history of traditional banking. Based on the legal arrangement that is in place between the institutions and their customers, banks are supposed to provide safety arrangements for their clients while safeguarding their money. However, it happens that banks operate using many terms and conditions that may be confusing to anyone. In some cases, banks can invoke a provision in the law which may not necessarily be expressly stated in their terms and conditions. Therefore, it may be difficult for anyone to understand all the rules that banks use when keeping money that belongs to their clients.
One of the most common principles that banks use, which may not be stated openly in their terms and conditions, is setting off. The concept of setting off means that a bank can move money from your savings account to other accounts to settle your debts with them without seeking your permission first. Basing on this practice, one can argue that banks can take your money.
🚧Can Bank Block My Account Without Warnings?
It is important to note that banks rely on a raft of laws and regulations to manage their relationship with clients. One of the most controversial laws that traditional banking institutions use is related to blocking accounts of their customers. It is possible for your bank to block your account and credit cards without even informing you first. Banks can use a law that allows them to do so when they are sufficiently convinced that the accounts in question are running or indulging in fraudulent activities like money laundering. In such a case, a bank may block the accounts associated with the transaction and not bother to inform the persons who are behind the accounts of the sudden closure. The bottom-line of the application of this legal provision is that if your account is used fraudulently, in any way, then your bank may block it. It may be necessary for the bank to inform you of their decision and action immediately if doing so does not amount to undermining investigations.
Moreover, the traditional banking system nowadays uses a form of an insurance system for depositors. In the United Kingdom, the deposit insurance scheme is under the Financial Services Compensation Scheme (FSCS).
The scheme, which was enacted by the Financial Services and Markets Act 2000, helps to cushion depositors against losses that may arise from the failure of banks to manage their deposits. If for a reason, a bank becomes unable to avail the money of its depositors, then the FSCS may step in to help the depositors. The scheme gets its funds from the deposit-taking institutions which are forced to make statutory contributions.
➡️Follow our blog, to know more about FSCS in the next article!
Since the establishment of this framework, the amount of compensations that the FSCS has been forced to make has been on a steady rise. For example, according to the Annual Report and Accounts for 2011/12, the institution paid out a total of GBP 26B during the Global Financial Crisis period. The amount of money that the institution has paid depositors so far is indicative of the risks that ordinary people face when they transact with institutions in the traditional banking system.
✍7 Ways to Protect Your Money (Even from the Bank)
Given the nature of the conventional banking system, it may be necessary to take measures to protect your money. The following are some of the steps you can take to keep your money safe.
- Keep your debts and savings in separate institutions
It is advisable to ensure that your savings are in a different institution from your debts because banks can efficiently use your savings to offset your debts if you have accounts in a typical institution. - Observe basic cybersecurity measures
Some of the most common measures that you can observe to keep your money safe include not signing into your accounts using any device or network. Limit the number of devices that you use to access your online account. Also, avoid accessing your account when you are using public Wi-Fi networks. - Monitor your bank account daily
Daily monitoring of all the transactions in your bank account can be an effective way of protecting your money. If you make it a habit of tracking your account activities daily, you may easily note any abnormal transactions are taking place in your bank and have the time to alert the authorities. - Track paper statements
Nowadays, many banks ask their customers if they would like to receive paper statements. Giving customers this option is necessary because many people are fond of using online banking services. However, you should use the option of receiving your paper statements from your bank. You can use the statements to monitor all the transactions and flag anything that looks suspicious. - Use 2FA to keep your accounts safe
Using Two-Factor Authentication can help to keep your personal information secure. Remember to activate the system whenever you are using online and mobile banking applications to make it almost impossible for fraudsters to access your banking details. - Keep your banking information to yourself
Fraudsters use various ways to seduce unsuspecting individuals to surrender their banking information. It is very common for people to receive long emails purporting to come from a well-established financial institution. The bottom-line of the messages is that the sender needs your personal information to complete an alleged process to protect your money. The senders of such messages are fraudsters who are hunting for your banking information to scam you. - Choose a bank that has an excellent reputation
It may be difficult to get a traditional bank that has an excellent reputation nowadays. According to a report, many people do not believe that conventional banks treat their customers in the best way possible. Some of the concerns against large ordinary banks are that they deliberately fail to disclose all the information to their customers and the public.
📈Britain’s Banks Ranked on Customer Service 2018
The Competition and Markets Authority ordered banks to publish customer ratings twice a year.
Read our next opinion tomorrow!
And follow our social profiles to always be up to date with news:
