There is a common misconception that banks hold all of the cash that customers deposit in that giant vault at the back of the bank. You know, the one that robbers in crime films are always trying to break into.

Turns out, this is pretty far from the truth. It is true that banks hold plenty of cash in the vault, but they typically only hold enough for a day’s worth of transactions.

So, where do banks put all of your money? 

While it might offer you peace of mind to know that it is sitting safely in a vault, that just isn’t the case. In fact, you might be surprised to find out where your money goes when you make a deposit! 

First, it’s important to understand how banks make money. 

How does a bank make money? 

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It all starts with you. 

When you place a deposit into your bank account, the bank, in turn, will “borrow” some of your money to issue a loan or two out in the world. Your bank chooses where to lend that money. They typically lend out around 85 cents on your deposited dollar, though this Loan to Deposit Ratio changes from bank to bank based on the specific strategies they might have. 

Remember that time you needed to take out a loan from the bank? Turns out you were really borrowing from other people and businesses that had some spare cash in their accounts. 

The bank acts as the intermediary and tries to ensure that the loan you took out is repaid so that those dollars are there again when the other people and businesses want to withdraw that cash. 

The bank keeps the interest you pay on that loan as its fee for being the intermediary. The difference between the interest a bank earns and the amount they pay their customers for those deposits is known as the Net Interest Margin. 

Many large banks have continued to develop products beyond this original banking model, but this is banking at its most simple and continues to be the primary model for many regional and community banks around the country. 

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How do banks choose which loans to make with my money?

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Every bank - and there are lots of them! - employs a somewhat unique lending strategy that is directed by their management teams and the charters under which they were created. 

In the case of community banks or credit unions, they often try to serve a small and distinct geographic footprint with things like local home and commercial mortgages or local business lines of credit. In the case of large national and multinational banks, they typically serve the largest corporations and often have industry specialties and niche product sets that serve a specific need for their own customers. After all, companies like Tesla have big cash and complex needs, so it makes sense they would need bigger, more sophisticated banks to help them. 

Some banks choose to take on higher risk loans, which increases the amount of interest they can recuperate (profit!) if the loans do not default (losses).

Managing the risk and duration of a loan portfolio is a complex job that includes regulatory oversight from entities like the U.S. Office of the Comptroller of the Currency (OCC). However, since the deposits must always be there when their customers want to withdraw their money (thank you FDIC insurance!), higher risk loans also present the opportunity for higher losses for the bank issuing those loans. Banks fund losses out of their own coffers so that their deposit customers are never impacted by good or bad loan decisions. A bank fails if they make too many bad loans and they run out of their own money to repay their deposit customers.

Do customers have a say in what types of loans their bank makes?

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Generally, no. 

These decisions are made by the management teams of each bank and are based on the expertise or business opportunities each bank might have. Management teams also weigh the need to meet profitability goals to meet investor expectations. 

This is increasingly becoming an important question as many of the largest banks around the country have spent decades making loans to companies that many people would never choose to support individually. 

If a local business asked their bank for a loan to build a hog slaughtering facility next to your home, you might not want the bank to make that loan. Similarly, you might not want your money being used to build oil and gas pipelines that pollute disadvantaged or indigenous communities. 

Unfortunately, the original banking model wasn’t built with customer preferences in mind. You may be excited to learn that this is beginning to change with the advancement of various technologies! 

For people that want their money used for lending to help reverse global warming, entities like Atmos have come into existence.

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Do banks do bad things with my money? 

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Everyone’s definition of bad is a bit different. It’s important to realize that many banks make decisions based on likelihood of repayment and potential for profit and tend to stay silent on moral considerations. 

Many of the largest companies in the world create products that use or extract an immense amount of raw natural resources that impact many communities. When banks provide loans to those companies with your money, they are helping to deliver those products and services, which means you’re helping to deliver those products and services. 

For example, between the years 2016 and 2020, over 60 of the largest banks around the world invested nearly $4 trillion in fossil fuel companies. This comes on the heels of overwhelming evidence that dependence on fossil fuels is quickly causing climate change and other environmental damage. Many of these banks prefer to avoid acknowledging their role in financing climate change. 

If you’re concerned about what your bank is doing with your money, try to find a bank that resonates with your values. If you’re someone who staunchly believes in and is concerned with climate justice, for example, consider starting your banking journey with an institution that shares those values and uses your money to help reverse global warming.

Where can I learn more about what my bank does with my money?

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If your bank is publicly traded on a stock exchange, they are required to disclose certain information in their quarterly and annual filings. This is a great place to start, though these documents only broadly talk about industries the bank may serve and usually gives a less than straightforward answer. 

Another way to ascertain what a bank does with your money is to talk to your bank directly. Ask them where exactly your money is going and what investments or causes the bank is supporting with your funds. Ask the tough questions! These conversations can be a great barometer of how ethical your bank might be. 

Reviewing a bank’s website may also unearth some details about what they’re doing with their customers’ money -- however this might be difficult to tease out. Banks try to convey the message that they are doing feel-good things while ignoring topics that might generate negative PR, so you’ll have to exercise your critical thinking skills. 

Lastly, people can solicit the help of third parties or banking experts, such as Rainforest Action Network or Bank for Good. These organizations spend massive amounts of time doing research to uncover what banks are actually doing with our money.

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Banking with Atmos: Be the change you wish to see in the world with purpose-driven deposits

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Atmos Financial is a financial technology company that was built on the foundational pillars of reversing global warming. 

Bank accounts are FDIC-insured and offer nationally leading savings rates and rebates. As a technology company, Atmos emphasizes a better user experience through intentionally designed web and mobile apps. Most importantly, Atmos uses 100% of its customers’ deposits for things like renewable energy projects and infrastructure that have a positive impact on the climate.