what do banks do with the money that is deposited in their bank?

Question

Why do the banks drop the service fee if you have a higher balance in the account?

Answer 1

They turn around and loan it out to someone else at a much higher interest rate than they are paying you for having it in there, so if you have enough in there, they can wave your service fee.......#######

Answer 2

The common MISCONCEPTION is that they loan it to other people.
The truth is, THEY DON'T. Your checking and savings deposits are NEVER loaned out.
In fact, they are not allowed to (except for CDs and money market / investment accounts, which they usually invest rather than loan).
In the Federal Reserve publication, Modern Money Mechanics, it says (p. 6) in rather clear language, “Of course, they (banks) do not really pay out loans from the money they receive as deposits.” Furthermore, the bank is required to have your money ready for you to withdraw *anytime* you want.

So What Do They Do With Your Money?
In simple terms, they hold it and use it to "originate" up to 33 times as much money as it holds. The technical term is "Fractional Reserve Banking" and it is the precise cause of inflation.

Crazy but true. Even crazier is what happens when you get an unsecured loan. But, we'll save that for another day.

~former bank manager and financial advisor

Answer 3

Because they loan your money or earn interest on your deposit. If you only have a few bucks in the bank than it's costing them money. If you have 10K in your account they can lend it out to the next guy for his car, home, boat loan, etc. loan at a higher rate of interest.

Answer 4

The service charge is to make up for the expense of handling a small account. They dont want to spend the time or expense to service a small account.

Answer 5

They use your money to make more money by loaning to other people, investing it, etc.