Where your money goes when you put it in a bank

Is your bank deposit lounging in a vault, wearing slippers?

Nope. Your balance records money the bank owes you: an IOU.

Some funds stay available as cash or balances at the central bank.

They also hold loans and bonds, which can earn interest.

Plot twist: making a loan usually creates a new deposit.

Borrowers get spending money; banks get a promise of repayment.

Payments between banks settle using balances at the central bank.

Loan interest helps cover deposit interest, operating expenses, and potential loan losses.

Capital rules and liquidity requirements keep this juggling act constrained.

But crowds demanding cash together can cause a bank run.

In America, FDIC insurance generally covers up to two hundred fifty thousand dollars per depositor, per insured bank, per ownership category.

That protects covered deposits if banks fail, not stocks or crypto.

Your money isn't peacefully napping. It's bookkeeping with a surprisingly busy social calendar.