Borrowers pay interest to borrowees any time they take out a loan.

The Government even pays interest when you "buy" it's notes and bonds.

Banks, too, pay interest to deposit holders. Does that mean I (and you, and everyone that owns savings accounts and CDs) is a lender to the bank?

(Google is of negative use: it just wants to push links about how to get loans from the bank.)

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    Yes. This becomes important when, for example, the bank goes broke and, thus, the "loan" you gave them defaults. Many countries have special protections in place for such a case, but, in principle, you are "just another creditor".
    – Heinzi
    Commented Mar 5, 2023 at 17:11
  • 3
    Not just savings accounts - checking accounts / current accounts with positive balances are also loans to the bank.
    – bdsl
    Commented Mar 5, 2023 at 20:45

2 Answers 2



When you deposit a sum of money into a bank account, that account is an asset for you. At the same time, it is a liability for the bank.

Let's say that you are depositing $1000 to your bank account. You no longer have that cash; the bank does. However, that account is an asset for you worth $1000. At the same time, the bank now has that $1000, which they can then use for other purposes. They have a $1000 liability to you, which means that they owe you $1000.

As you mentioned, per your agreement with the bank, they may pay you interest and/or provide services to you while they owe you that money.

It is very similar to you taking out a loan from the bank. In that case, the bank is the one that gives you cash. You can now do what you want with that money. They have an asset (the note), you have a liability (how much you owe), and per your agreement, you owe them interest while you hold their money.


Conceptually, yes, we are lending our money to the bank, and it is leveraging those loans to make other loans at higher interest rates.

It differs from most loans in that we can increase or decrease the "loan" at any time, and the "borrower" is setting the interest rates (at least until you take the money back and go somewhere else).

("Grandma must have had one more account somewhere; there are one too many toasters.")

  • 6
    Another important difference is that "normal" bank accounts are very heavily regulated compared to other loans. The bank is very much not allowed to take all of the money you put in your account, lose it on risky investments, and then tell you that you're out of luck. The bank has to be sure that it will be able to return your money immediately whenever you ask for it, and if the bank fails to do that, the government will (in most countries) step in and take over the bank's deposit liabilities. Banks do take some risk here and there, but they are not (usually) day trading.
    – Kevin
    Commented Mar 5, 2023 at 20:16
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    Increasing and decreasing the loan amount is what we (Americans, at least) do every day with their credit cards.
    – RonJohn
    Commented Mar 6, 2023 at 11:00
  • Valid point, @RonJohn. I guess I don't think of credit cards as loans because I'm extremely careful never to pay interest on them, but they certainly are even if used in short-term mode.
    – keshlam
    Commented Mar 6, 2023 at 13:47
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    @Kevin, the bank predicts that it will be able to return your deposit on demand. In most developed countires, the government regulates the amount of reserves a bank must have to trade as a bank - see fractional-reserve banking. Since deregulation of the financial markets in the late 1980s, retail banks have undertaken a lot of higher-risk trading - see in particular the effect of the 2008 subprime crisis on Icelandic and UK banks (among others).
    – grahamj42
    Commented Mar 7, 2023 at 0:43
  • @grahamj42: Sure. My point is not that they don't lend out the money at all, it's that they can't take it and blow it all on nonsense "investments" such as NFTs and crypto. It's also interesting that you bring up the 2008 crisis, because at least in the US, a major effect of that crisis was to separate retail and investment banking.
    – Kevin
    Commented Mar 7, 2023 at 4:56

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