How to beat the banks and save smart

We’re used to thinking of banks as safe places to put our money (at least we were before the 2007-9 crash) and as institutions that pay us a bit of interest to make it worthwhile leaving it with them rather than under the bed.

But did you know that when you ‘deposit’ your money with a bank, they don’t actually hold it in a vault somewhere for you? In fact, if we all went to our banks right now and asked them to give us all our money back, they wouldn’t be able to do it. We would probably only get about 3% of our cash back. 

This is because banks lend our money to other people. And they lend it out over and over again. They don’t do it consecutively (taking the money back and then re-lending it to someone else); they do it simultaneously. In other words, your savings are being lent to several different people at the same time. Weird huh? Effectively, the banks can make money out of thin air based on the money you ‘deposited’. 

Not only that, you don’t know who the bank is lending your money to while paying you a paltry return. You might be shocked if you knew where they were putting your money (over and over again). It could be going to all sorts of dodgy businesses and individuals. You’re never asked. But back to the money itself.

The banks make money by lending your money to other people, and they make a lot more than they’re willing to offer you in the form of interest. Now, you could say that it’s only fair they make more than they pay out. They’re a business, after all. They have to look at the bottom line. But there’s a fair amount, and then there are extreme profits. And it seems only reasonable that you and I get a bigger slice of the profits banks are making on the back of our hard-earned cash. Pre-tax profits that totalled $55.1bn (£45.6bn) last year alone.

Beyond the low interest rate, there’s another aspect of bank lending that causes real problems. By using your money as leverage to create all these new loans, the banks are helping to increase inflation. How so?

Well, the more money created (digitally, out of thin air) on the back of your deposits, the more money there is in circulation. And the law of economics tells us that when there’s a lot of something in circulation or supply, its value decreases. The reduced value of pounds sterling is realised through rising prices (inflation). Suddenly, you need more pounds to pay for things than before. Let me break it down for you in terms of savings.

As you’re no doubt aware, the current inflation rate (the rate at which prices are rising over 12 months) is 10.1%, whilst the best rate you can get on an instant-access savings account is 1.85%. In real terms, if you put your money in that ‘top-rated’ savings account, you’re actually losing 8.25%. You won’t see your bank balance going down, you’ll just be able to buy 8.25% less than you could the year before for the same amount of money.

Of course, it makes sense to have money set aside; ideally, a short-term cash fund (just in case) and money invested for the long-term. But it doesn’t make sense to put your money into something that will only lose value (read: pounds). 

Do you remember the Cyprus financial crisis back in 2012-13? When their banks got into hot water, they used their customers’ money to avoid bankruptcy. Yup, that’s right, banks can go bankrupt, too. 

When banks confiscate customers’ funds, it’s called a bail-in, and don’t think that it couldn’t happen here. It could. In fact, there are already murmurings in various countries about the possibility of bail-ins coming up in the next year or two.

This means that your bank could potentially nab the money you have in your accounts if need be. And as the economy becomes even more fragile, it’s worth bearing in mind before you start piling up money in a traditional bank account. Of course, the FSCS has your first £85,000 covered, but anything more could be up for grabs.

We all remember the 2008 financial crash, which saw a few international banking institutions fail (Lehman’s, for example) and others totter (Goldman Sachs, RBS NatWest etc.). But did you know that the reason the whole system didn’t come crashing down was because the government poured in billions of tax-payer money? That’s right. We saved them. To give you an idea of the scale of the bail-out, just one bank, RBS NatWest, was bailed out to the tune of £57bn. That’s tax money that should have been used to improve education, health and infrastructure, not look after the bottom line of big banks with risky lending practices.

You would think that after all that money and fuss was expended, the banks would have cleaned up their acts. Not so. There’s an ever-present possibility of something similar happening down the track.

I know what you’re thinking. How can I keep saving without subjecting my money to risky bank practices? And what choice do I have other than saving in pounds? The good news is, I also have the answer. 

TallyMoney is an alternative currency and personal account that lets you keep your money and savings in physical gold. Why gold? Because although the value of gold fluctuates (up and down) day-to-day, gold is historically proven to increase in value in the long term. This makes Tally the only mainstream currency that helps to protect the long-term value of your money from inflation. Better still, Tally never lends, leverages or invests your money, so there’s never any danger of a bail-in or bail-out. Here’s how it works.

When you deposit money into your account, those pounds are used to buy you LBMA-accredited physical gold at the global wholesale price, which is securely stored and insured on your behalf. Every 1 milligram of gold you own is denominated in ‘tally’ in your online account. You can save, send or spend your tally instantly using the app or Tally Debit Mastercard, giving you the liquidity of cash with the security of gold! 

To open an account, you just need to be 18 years or older, a UK resident and have an existing bank account in your name. Once you’ve been approved, there’s a one-off account activation fee of £19 and an annual account keeping fee of 0.9% per annum (calculated daily, charged monthly) – this gives you unlimited transactions and uncapped protection. And it’s a small price to pay for an innovative product that gives you complete control over your money and a fighting chance against inflation. So, why not get a Tally Account today? Your future self will thank you.

This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.