To effectively implement the Infinite Banking Concept in your life you must have some understanding of banking. Let’s jump right in and get you the essential information.
What is banking?
Banking is a process, it's not a building that they call a bank.
When you place a deposit with your bank, they use YOUR money when making loans. They charge interest on these loans, so they can then in turn pay you interest for keeping money with them (and stuff their pockets to boot). Simply put, banking is the process of depositing, borrowing, repaying and withdrawing money.
Remember, money is simply a medium of exchange. It’s not technically backed by anything anymore.
When money isn’t backed by anything, such as gold, it can be inflated. People often think of inflation as higher prices, but this is just an effect of inflation. Inflation is an increase in the money supply. When there is more money, your dollar buys less of a particular item than it did before.
How do banks make money?
Banks pay you interest on the money you deposit to entice you to leave money with them. Your deposit gives the bank money to loan out. The bank will then charge a higher amount of interest for a loan to a business or individual, and this “spread” is how they make money. Below is an example to demonstrate how this works:
We’ll use a CD earning a 1% rate of return, and a loan @ 5%. Many people would say the bank made a 4% return in this example, but that is wrong. Step back and think, if you have 1 dollar and turn it into 2 dollars, you doubled your money; you received a 100% rate of return. Okay back to the original example.
Let’s say you have $100 dollars in your CD at the bank and they loan out that $100 to someone else. It cost the bank $1 to use YOUR money, and they made $5 from the loan.
So, doubling your money was a 100% rate of return, tripling your money would be a 200% rate of return, quadrupling is a 300% rate of return, and quintupling your money is a 400% rate of return! The bank made a 400% rate of return and didn’t even lend out their money, it was YOURS!
Fractional reserve banking.
Banks today use what is known as fractional reserve banking. The reserve requirement depends what a bank has for assets. Larger banks with more assets have a 10% reserve requirement (in March 2020 this reserve requirement was lifted and you can see this announcement here: https://www.federalreserve.gov/monetarypolicy/reservereq.htm), stricter than smaller banks. So, a quick example with the 10% here: $100 is 10% of $1,000.
If the bank only keeps a 10% reserve, they can take your $100, and loan out $1,000 (inflating the money supply, weakening the purchase power of your money). This would allow them to make ten of the loans I just showed you.
This drives the rate of return up to 4,000%. Banks today are currently not lending this heavily (or inflating the money supply to this degree), and the practice works in a more complicated manner than this, but this gives a simplified example of the practice.
Taking back control of the banking function in your life.
To take back control of the banking function in your life you have to understand what banking is. This allows you to see that banking WILL be performed in your life, and if you don’t do it – someone else will. I let someone perform the banking function in my life until I discovered the Infinite Banking Concept.
Nelson Nash, the creator of the Infinite Banking Concept (aka IBC) said, “Everyone should be in two businesses-the one in which you make your living and the other should be the banking business that finances whatever you do for a living.”
At Cash Value Solutions, we work with individuals and business owners, giving them the knowledge and tools necessary to perform the banking function. We show you how to direct your flow of money into an IBC designed policy, in order to cut out the middle-man (traditional banks).
When you work with us, you will gain an understanding of why the banking function is important to control in your life, and realize the peace of mind it provides. You will have ready access to your money for any of life’s events, whether it’s business, investing, personal, or emergencies. We strive to help you achieve your financial goals outside of the Wall Street casino, with a product that has stood the test of time, for more than 200 years.
If you’re ready to take action and move toward a more certain financial future, schedule a financial strategy call today.