This article is written by Rebecca Boden; professor in management accounting and Money Principle Master Extraordinaire.

Have you ever wondered what happens to the money that you have in the bank? Disappointingly, they don’t keep it in a giant sock under the bank’s bed.

Banks make some of their profits by borrowing at a lower rate of interest than they lend at and keeping the difference. Most, if not all, current accounts pay no interest to the person who owns the money. And at the moment, bank deposit accounts (savings accounts) pay a very low rate of interest. This means that banks get to use our money for free or very cheaply. Unfortunately, our generosity to banks is not reciprocated: they lend the money that is in our bank accounts onto other people at quite high rates of interest.