E14: How to Break Free from Banks

Nate: In this episode, we will discuss how banks have a monopoly on your money, and why they’re one of the most profitable businesses in the world, and how you can break free from their scheme. She’s Holly, and she helps people find financial freedom.

Holly: He’s Nate, and he makes sense out of money. This is Dollars and Nonsense. If you follow the herd, you will be slaughtered. Episode 14.

Nate: So, Holly, this topic definitely hits home. As we spoke about before the podcast, we can talk about this thing for hours. So we’re going to try to nail this down in 20 minutes or so. The whole concept of how do banks really work and essentially the premise behind infinite banking, the concept that we teach, is about becoming your own banker. It would be good to know how they work, but also it unveils the problem that people find themselves in and creates a desire to get out of it. So that’s what we’re going to start with—how banks work. Starting off with what is the bank business model itself? How do banks make money off of you?

Holly: Basically, Nate, they make money off of you by simply allowing you the opportunity to deposit your hard-earned money into their bank. And once you deposit that money, then they are able to make loans off that money. But often those loans are even to you yourself, so not only do you have to pay to use your own money that you’ve deposited into a bank, but [also] there are fees associated with it. Banks make a majority of their money, and the way they really earn money, is through loans. And the other way is through fees. They make billions of dollars a year just on fees for their own bank.

Nate: Yeah, one of the remarkable things that people don’t realize when we talk to them is a deposit—every deposit that someone makes at a bank is really like a little loan to the bank . . . they’re essentially lending money to the bank, and the bank simply takes our money and goes and puts it to work. That’s a sweet little business model that they’ve got, considering right now us depositors get practically nothing. So we’re lending/giving free money to the bank today, many times practically free, for them to go lend out as many times as they possibly can and make a killing. As you said, many times we’re not only the guys with the deposits but we got the loans with them, too.

Holly: Nate, the key there, too, is you gave the money so that they would be able to make that loan.

Nate: Without us, they wouldn’t have any money.

Nate: No, in fact, we’ve spoken to a banker, and they’ll tell you that the most expensive money is the money that has to sit in their teller’s drawer.

Holly: Yeah, because they can’t lend it out. That’s often times why if you go to the bank, and you want to take out a large sum of money, and I’m going to say a large sum is $10,000, and you want to go buy something with your $10,000, whether it’s sitting in your savings account or your checking account, often the bank doesn’t have that money on hand to give you as cash. They can give you a cashier’s check, which you have to pay for, by the way, most of the time. But they can’t actually give you the cash because they don’t have that much cash sitting there in the bank because that’s a liability for them.

Nate: That’s a great point. All the cash that they have is a liability. It’s a loan that their depositors have lent them the money. Legally, it’s a loan; it’s not their money and they have to go put it to work. So they don’t want any money sitting or else they’re not going to be as profitable. That’s why Ray, the founder of Living Wealth, said that this last Christmas he came in probably a bit late in the Christmas season, so everyone’s been to the bank to get cash, but he came in and all he wanted was $5000, and they said they didn’t have it right now. $5000!

Holly: They did! They said they didn’t have it. They said he could order it, and he could have it in two days.

Nate: Exactly. He had to wait to get $5000. It’s amazing how much money they have working and how little money they keep of yours. That’s like whenever you go deposit $100 in cash and you come back through thirty minutes later for $100 back, [but] they didn’t put that $100 in your account; that went into the general account of the bank. And they’re just going to give you someone else’s $100 back because your account they’re already putting it to work somewhere. It’s an amazing business model that they’re making money whether or not you borrow from them or you deposit with them.

Holly: They’re happy either way. They love for you to continue to borrow from them so that you are borrowing to use your own money, but they never want you to stop making that deposit. So think about that. They never want you to stop making your deposits of that hard-earned money because that limits what they are able to loan out. Because you’re loaning your money to them but they’re not giving you much, if any, interest to be able to then loan that money out. And with that thought I’m going to take us to commercial.

Nate: Welcome back. Holly, as you just said, many times—and just kind of falling on that play of them wanting your money—many times it’s not only the loans but the fees they charge for lending money or cashier checks, and also they’re starting to add fees just to your checking accounts if you don’t do certain things. Bank of America, you have to keep a minimum balance with them; it’s not too high. Or you have to have your job have a direct deposit into your account. In other words, they just want to get your money immediately so there’s no chance that someone else can get your money because that’s their lifeblood. And that’s why we said at the beginning they have a monopoly on your money. They get every single paycheck . . . Every single loan repayment that you have for all the bills you pay goes right to them. Almost every dollar, if not every dollar that you receive in your life will one day or another through payments or deposits find its way into the bank.

Holly: Even for me, Nate, I’ve had an account with one particular bank for 21 years. Same account number. Nothing’s changed. It’s good to go. Yet I was told literally four years ago that unless I had so much money direct deposited in there or I kept a minimum balance that I would have to pay $12 a month just to keep my account open with them. Like you said, the amount deposited isn’t much; it’s only $250 a month. Or, here was the kicker, I could open up a credit card with them, and that would waive my fee. And just if I want to be able to transfer money from my personal account to my business or vice versa, I have to literally go into the bank to do that; I can’t do that online; however, if I opened up a credit card with them, I would be able to complete that transaction online without ever having to come in the bank. So it’s one more way for them to get money because hopefully I would buy stuff on credit and then have a high interest rate if I didn’t pay that credit card off. So it’s a way for them to keep me continuing to give them money.

Nate: Exactly. And that’s really what the banking business is all about: is making money off of their depositors and their borrowers. And they really need both. That’s why we said they have a monopoly on your money. They make money left and right. The biggest issue is that most people don’t realize that you’re technically in the banking business; you’re just getting screwed right now. Because you’re already funding, through the deposits you make and the loans you take, you’re funding all that the bank needs to run their business; you just don’t make any profit. That’s like funding a business and putting all the money into a business but making nothing of the profits. You would never agree to do that. But that’s how we have been conned into thinking how to do banking at this point.

Holly: We’ve been taught that we have to deposit our money in a traditional bank. And we have to take loans from a bank if we want to purchase almost anything in life, that it has to go through some type of bank. We’ve never been taught that we could do that ourselves. Or you have to save up the cash to buy what you want to buy. Often even those savings are still with the bank. They’re deposits that you make into the bank. They’re rarely hidden under a mattress at your house in order to save up for that car you want to buy or that vacation you want to go on.

Nate: Yeah, that’s why we were saying they don’t really care if you make deposits or loan repayments with them. You borrow money or deposit; they don’t care. They just want your money. They don’t care how it comes in; they just want it. That’s the premise behind the infinite banking concept that we teach is the issue that people are doing banking right now and they’re getting killed out there with interest they’re paying, and the fact that they’re not earning money on any of their deposits; they’re getting hit on both sides. Paying interest and not earning interest. And it’s actually much easier than people think to make money through that process of banking but by switching where you bank. So, Holly, I thought we could expound on that here as well. How can someone become their own banker? How does that work, especially when it deals with infinite banking and policies?

Holly: It’s about understanding that your policy with a life insurance company is a way for you to make deposits or pay yourself. Just like you deposit in a bank, your life insurance policy is your deposit. That’s the simplest way of saying it. Your payment, or premium, for your life insurance policy is literally a deposit; it goes into a general pool of fund.

Nate: Right, so why exactly, as far as the difference is concerned, why would we rather deposit in the policy versus just doing what we’ve always done at the bank?

Holly: Number one, because you’re a shareholder with the company, when it’s a mutual company, you become a shareholder. So any profits the life insurance company makes—think of a bank; a bank makes a lot of profits— those profits go to the shareholder. With a life insurance company, those profits go to you. The other thing is you’re able to control your money. You’re not going to lose control of your money in a life insurance company. In fact, your loan, which for a bank a loan is an asset, if you make a loan on your life insurance policy to yourself, that you need to view as an asset to yourself because you’re going to be able to get all the principle and the interest back. And the other key is that when you make that deposit, you get a guaranteed interest rate that grows tax-free that doesn’t go to the bank; it goes directly to you as a policyholder.

Nate: So essentially, by switching it you start making interest and dividends, as you mentioned, because you’re the owner; we get the profits. Not only do we get the interest that the policy is growing by, but we get the dividends at the end of the year. So you’ve essentially become the owner of a big banking institution, that’s what an insurance company really is, and so you’re starting to make profits on all the money that the banks used to make off your deposits. But as you mentioned, normally people don’t just have deposits with the banks; they also have loans with them. So if you can build up a policy to be big enough to take over that third party debt that you have with the banks, then now you’re not only making interest on your deposits, but you’re recapturing all the principle and the interest that you used to send on these loans to the bank that you get to keep and reuse. So essentially it puts you, as you said, in a position to be your own banker privately without having to build the building or hire the employees or do anything; you just get to plug into the system the way it really should be. That’s what I like to say to people. You’re simply making the money you should be making at the bank, but they’re just sending it to their shareholders instead of sending it to you.

Holly: Overtime, you are able to take over that debt, like you said, or to be able to borrow to buy something that you wanted and then that debt is owed to you. It’s not owed to the bank. Honestly, if I took money and I bought a car and I had to pay myself back—I say pay myself back because if I borrowed it from a bank I would pay them, so I am paying myself back—I would never repossess my own car that I used cash to buy. But a bank, if we borrowed it from a bank and we were behind on payments and stuff, they would absolutely come and repossess that car. And now it belongs to the bank. And all the money you gave to them, it’s gone because it doesn’t matter. You don’t have a car, and you don’t have the money back that you used to purchase the car.

Nate: Exactly. And that’s why we say banks have a monopoly on your money. They get all your deposits, but especially it’s brutal when they get all your payments so you get nothing, and they get all the money back for a car. You can actually do that. You can get all the money back for your car and reuse it if you became the bank and started monopolizing your own money and profiting on your money the way you should be the whole time. That’s really how banks work; they make money off of you whether you borrow or you deposit. And the infinite banking system is built to try to become your own banker and make a profit where you’ve currently been making nothing. In fact, probably been getting ripped off. Holly, anything in closing before we close it down that you want to mention on this?

Nate: It’s ridiculous. That’s why banks have really no risk involved with their business because they have no money in the game to begin with. It’s everyone else’s money, and what’s amazing is that with the FDIC coming in . . . they came in because the banks are never at risk of having their borrowers default. People don’t realize this. The bank’s not at risk because they didn’t lend their own money. The depositor’s money is [what] was lent. So if a bank goes under, guess who ends up losing all their money. It’s their depositors. If a bank goes bankrupt, who do they go bankrupt to? All the people who lent them money; it happens to be you and me. So the FDIC came in to guarantee depositor’s money in case the banks failed because then we’d all lose a whole bunch of our money. But people haven’t really been thinking like that. It’s an amazing business that banks essentially take no risk because they don’t put any money of their own into these loans. It’s all our money. And the government comes in and guarantees the deposits up to a certain amount so they can go willy-nilly out there and not have to worry too much about it.

Holly: And they can loan out money they don’t have, either. It’s not just the fact that we’ve lent them our own money to loan out, it’s also that they can loan out more than what we’ve deposited with no repercussions for it.

Holly: It’s literally a push of the button on a loan transaction. This much money was deposited into the bank and “Oh, we can approve this loan,” and they just push a button, and there goes the money. When we go buy a car or we go buy a house, we don’t actually see that money. It’s just a bank promising to the seller here’s the money for the house. It doesn’t necessarily have to exist.

Nate: If I could lend to other people ten times the amount of money I have in my account, I’d be rich in no time. But I’m not allowed to, unfortunately, so I have to do it the old fashioned way where $1 is still $1. And I can make one loan with my $1. That’s the Ponzi Scheme that the banks run with our money right now.

Holly: And we have to understand that the bottom line—it’s so simple—is that our money deposited is a loan to the bank that they’re then able to loan out. And who are they loaning it out to? Us, ourselves. We’re literally paying the bank to use our own money. And we’ve been told to keep doing this over and over again. And to work hard and to buy more assets through loans in order to create more financial wealth, supposedly, for ourselves.

Nate: And we can build wealth through the same process that the banks do. That’s what infinite banking is really about.

Holly: It’s giving you control of your money, allowing you to earn interest tax- free, and being able to use that money the same way the banks use your money everyday.

Nate: You got it. That’s how banks work and how you can take advantage of a different system of banking that can profit you. This has been Dollars and Nonsense. If you follow the herd, you will get slaughtered.

Holly: Get free resources and transcripts from this episode by visiting livingwealth.com/e14.