How Banks Profit From Your Deposits

DO WHAT BANKS DO, NOT WHAT THEY TELL YOU TO DO.

DO WHAT BANKS DO, NOT WHAT THEY TELL YOU TO DO.

Below is an Example of Velocity at work for a bank.

What do you care about a banks velocity? This portrays what they do with your money and why the financial system is set up to prevent you from doing this for yourself.

Arbitrage - Secret Bank Strategies

But! there is one way you can accomplish a similar version of velocity for yourself. You must read all the way through so you understand why you want to do everything in your power to mimic this strategy.

Banking Velocity Example

The following charts depict one level of how VELOCITY creates profits for banks. The example I am using shows some of what banks earn on one $100,000 deposit into a CD for 5 years earning 1.5%.

First though we must understand a few things. What is VELOCITY? In simple terms, it is the recapturing, reusing and recycling of the same dollar over and over and over again for as long as possible.

Secondly, it is fact that banks can lend 9 times more than the total amount on deposit. So the $100,000 that ‘Sally the Saver’ has deposited into her CD account allows the bank to lend nine times that amount, $900,000. (p 151-152 How Privatized Banking Really Works).

I will not be including the lending of one million dollars in this example. I am keeping it simple by only lending the 100,000. You can multiply all the numbers by ten though, to get the real picture.

Let’s get started: I have mapped out a scenario where the bank began by dividing that $100,000 into four $25,000 vehicle loans @ 4% for 48 months, to four separate borrowers.

I have simplified this scenario even further by depicting the bank holding the monthly vehicle loan repayments till they accumulate to equal at least $25,000 of repayments, enough for another $25,000 vehicle loan.

This is not what banks do normally. Do you think the bank will hold onto 12 months of repayments before it lends that money to another borrower? Never!!! Normally, as soon as that money comes in, it is loaned out again. That will be velocity level two. When those loan repayments come back to the bank and are lent out again, we see velocity level three, etc. etc.. There are normally many levels of velocity but once you understand the first, you can apply it to the others. So the velocity levels are going across and down at the same time. I just don’t show them all.

This is the most conservative illustration and even so, the results are impressive for the bank.

Each chart is divided into 8 columns.

Column one lists the 60 months of the CD term.

Column two is the monthly payment received by the bank from the number of vehicle loans that payment represents.

Column three is the total amount of interest just one vehicle loan repays with a 4% interest rate being charged.

Column four is the total amount of principal each one vehicle payment consists of each of the 48 months.

Column five is the total amount is interest paid by all the vehicle loans during the respective month.

Column six is the total amount of principal paid by all the vehicle loans during the respective month.

Column seven is the cumulative total of interest and premium paid by all vehicle loans, over the 60 month period.

Column eight is the cumulative end of year amount of interest earned by ‘Sally the Saver’ for depositing $100,000 in her local bank’s CD.

Click on the diagram below to see the first twelve months of the 60 month CD term.

Months 1 through 12

After twelve months the bank has now recouped $27,095.04 in monthly car repayments and so the bank can lend that $25,000 to another fifth borrower.

As I stated earlier, banks would not normally hold on to the accumulated repayments before lending that money again. But for ease of understanding, I have not re-lent the repayments till month 13.

Also note that the bank increased ‘Sally the Savers’ $100,000 to $101,508.46 due to the earned interest for the first of the five years.

Click the image below to view months 13 through 21.

Months 13 through 21

 

Notice now at month 21 the bank has recouped $25,401.60 in loan repayments but within only nine months this time.

A sixth borrower can now buy a $25,000 vehicle.

Click on the image below to view months 22 through 29.

Months 22 – 29 of auto loans – 2 yrs 5 months of CD

With six vehicle loans being repaid, the bank has enough to lend borrower number seven $25,000 in only eight months this time.

Also note at the end of year two of the 5 year CD the bank paid $1,531.22 in interest to ‘Sally the Saver’ for the use of her $100,000 for the second year.

Months 30 through 36 or 3/5 CD years

Seven months later, another $27,659.52 has been repaid to the bank who lends $25,000 of it to borrower number eight for another vehicle.

Also, 3 years are up for the 5 year CD and so $1,554.31 more interest has been compounded over the past year.

Sally now has a total accumulation of $4,593.99 to add to her $100,000.00.

Click on the image below to see months 37 through 42

Months 37 – 42

Six months later another $27,095.04 is repaid so another $25,000 loan is made to borrower number nine.

Months 43 – 47

 

After month 47 and before month 48 – the end of the first four vehicle loans…

After 47 months another $25,401.60 has been generated with nine car loan repayments over five months and so loan number ten is now in force.

After the final .18 cents has been paid back on month 48 the first 4 vehicles are now paid off and ‘Sally the Saver’ has earned another  $1,577.76 which has grown her deposit to $106,171.75.

Please note at the bottom of column 7 on the diagram above that the bank has earned a 62.79% return on their money, so far, on level one of the velocity scale.

This example also shows a 4% interest rate for all vehicle loans. Most loans are higher than that.

This example also only shows the first level of velocity. Banks will never wait twelve months before they put those repayments to work. They lend them out again immediately upon receiving them.

That will be level two of velocity levels x 10. Can you imagine? Also, the interest that is being added to the principal $100,000, which equals $6,171.75 at the moment, is also available for the bank to velocitize as well.

Also, ponder this.

If the bank is lending money they don’t really have, (which would be $900,000 for this scenario but which is really only showing the actual $100,000), isn’t the interest and the principal that comes in from these loans, all free wealth to them? Also it is creating inflation by making more money out of nothing. Inflation devalues the dollar.
 
So let’s keep this chart going as even though the first four loans have been paid off over the 48 months, the CD is a 5 year CD and so we’ll keep this going for five years.
 
There are now 6 active loans left on the 1st level of our velocity example, being that the first four are paid off..

Months 49 – 55

 
The last eight months of repayments on the six remaining cars has yielded $27,659.52, enough for another $25,000 car loan for Borrower number eleven.
 
And Click on the diagram below to see how another $27,659.52 will be generated over the next seven months, two months past the 60 month or 5 year mark for the CD anniversary date, for loan number twelve.
 
Will the loans ever end, even though the 5 year CD term has ended and even though Sally the Saver has her $100,000 back in her pocket? No.

Months 56 – 60

Let’s now look at the numbers

The bank has paid an interest rate of 1.5% to ‘Sally the Saver’ over the five year term of her CD.
So her $100,000 grew by $7,773.30 over the five years.Yippee!!!
But that interest growth has to be taxed and she has had no access to her own money all that time.
Well she could have, if she was willing to pay a penalty.
However, most people are happy that their money is safe and FDIC insured in a CD, while they borrow money from the same bank to buy a car.
 
So if ‘Sally the Saver’ earned 1.5% how much did the bank earn while velocitizing that $100,000 and charging their borrowers 4%? Which is just 2 1/2% more than they paid ‘Sally the Saver’.
 
But, on top of that the bank also has to deduct from that profit margin their expenses, so most people think the bank is earning about the same as what they are paying their customers.
 
If this was true then how did the bank more than double ‘Sally the Savers’ $100,000 in just five years?

Please remember also…

…that for every $1.00 deposited, the bank can lend $9.00, so after paying back ‘Sally the Saver’ her $100,000 and paying her a generous $7,773.30 of interest for the use of her money for five years, they really ended up with $1,000,000.00
 
Or did they?
 
Whoops, let’s not forget that this scenario is portraying only one limited level of velocity. I am only counting the repayments after they add up to the price of another $25,000 vehicle.
So think about what these amounts would look like if every single monthly repayment was re-lent, every single month, as soon as it was deposited into the bank. That is what actually happens.

Another point to ponder

If the bank only took in $19,785.49 of interest payments, where did the other $86,474.87 come from?
 
Because the bank was lending the same money over and over and over and over and over again, for five years, all the interest AND principal payments were extra, free money, after that first $100,000 was paid back.
That is how the velocitizing of your money works. Don’t forget to times that by ten for the bank.
Of course, we cannot do this or we would be jailed for fraud.

Something else to point out is that …..

…at 60 months (the end of the 5 year term) only 5 cars are paid off so far. So the earnings of the bank will continue for another 43 months till the eleventh vehicle loan is paid off. Oh, but wait, what about all the loans these six vehicle repayments will generate over that time. Will the banks profits ever end?
 
Sally has her $100,000 back with her $7,773.30 of before tax interest, yet the bank is still raking in the profits.
 
Of course ‘Sally the Saver’ has had her $100,000 returned to her but she may want another safe CD for her money to grow in for another 5 years. The bank certainly hopes so. And I know you can see why.

Now the big question to ponder is this?

Why do financial institutions restrict you from access to your savings and often penalize you if you want to use your money before a set date?
 
Because you interrupt THEIR cash flow velocity.
 
The longer they have access to your cash, the more profits they generate for themselves.
 
If they didn’t penalize you, you would use your money more often.
 
If they didn’t restrict your use, you would velocitize your money more often.
 
If they didn’t have control of your money, you would have control of your money to velocitize it for your self. RIGHT?

All banks do is move money…

…Banks move the right amount of money, into the right account, at the right time, for the right amount of time, and they do that all the time. All they do is move money. But what are we taught to do with our money? Have it sitting and growing for later on, right?
 
They want our money to be stagnant for us, so they have free-reign to move it for themselves. Basically they want us to keep our money in their jail for as long as possible under the proposed benefit of growth over time.

So, knowing this now, can you see why…

…the government and the banks working together want you to put your money into multiple savings buckets for as long as possible, with restricted access of course?
 
And think about what methods they use to entice you to put and keep your money in their buckets.
 
A big one being tax-deferred. Ha, Ha Ha. Yes, that is a good one. They have you paying taxes on the seed and the harvest at an undetermined tax rate instead of paying tax on the seed only right now. That is a whole other topic though.
 
What are some of your choices? Let’s see, We have savings accounts, CD’s and Money Markets. These offer a little interest for short term savings.
 
Now what about 529’s for college savings plans. These are encouraged to begin when the new baby is born so they can have use of your money for 18 or more years.
 
Then there are the forty year vehicles for retirement, IRA, Roth IRA, 401(k).
 
There are annuities and pensions and social security and oh so many mutual funds, stocks, bonds etc. etc.
 
Each bucket seems to serve one purpose for you but they all tie up, restrict your control of and access to your money and are taxed on the growth.
 
These restrictions penalize you if you do need to use some or all of it, and they offer no or limited guarantees and growth.
 
Just think of the lost opportunity this creates for you not being able to velocitize your own money.
 
One more thing – Ever thought about the fact that only around 2% of Term Life Insurance policy death benefits are ever paid? Ever wondered why that is?

Banks care way less about interest rates than…

… they do about Volume and Velocity.
 
Can you see why financing your own needs through your own banking system is just so so so much more lucrative than any other way of building wealth.
 
Do you see why rate-of-return is insignificant compared to volume and velocity?

You are Forced to Borrow from a Bank….

…if your money, your savings, your investments, are all tied up in their jail. But when you want to buy a car or pay for your daughter’s wedding, or buy some furniture or go on a vacation, or pay for your son’s college education, what are you forced to do?

Borrow money from a financial institution!

So, what if there was a different way of banking? How soon would you want to know about it?

Do you want to learn how you can borrow from your own privatized banking system and velocitize your own money?Keep your money out of jail. Start now.

Call me now for your free consultation.

Jennifer Hansen

845-649-7487 or

email me jennifer@DebtDiagnosis.com

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February 10, 2011 · Jennifer · No Comments
Tags: , , , , , , , , , , ,  · Posted in: Bank Profits are HUGE, Bank Profits on CD, Central Bank, RATE of RETURN, Volume & Velocity

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