Banks keep only a fraction of your deposits and lend the rest at higher rates. A bank earning 4% on your money might make 20% on that same cash, a 500% return relative to what you get. That's why your savings account pays almost nothing.
Have you ever wondered why your savings accounts get so little interest? 2%, 1%, 0.8%. Ugh! Through a method called fractional reserve banking, banks wait for you to make a deposit, promise you 1% interest, keep only a fraction of that money in the bank, and then loan out the rest for 5 to 18%. Let me give you an example. Let's say you found a bank that was going to give you 4% interest. Probably not going to happen, but let's just say you did. Somebody else needs a home loan and they get 5%. Somebody else needs a car loan, they get 6%. Somebody else, a remodel, they get 7%. And then there's somebody that needs maybe a personal loan, they get 18%. The difference is 1, 2, 3%, and 14% for a total of 20%. Now let me ask you a question. How much more did the bank make than you? You're probably thinking, pretty simple question, Ike. I— they made— they made 20%, I made 4%. 20 minus 4, they made 16% more than me. How about 500% more than you? Because It's true that if you had $4 and the bank has $20, isn't that 5 times more than you? 500%! Banks make anywhere between 400% and 1,300% annually on the money that you put in there. Well, that's just the way things are, Ike. Doesn't have to be. With a diversified cash flow account, you can put your money where the banks do without locking it up, without having any risk of losing it, and without having to settle for 1%.
