Before payday arrives, some of us often arrange with our employers to ensure that our salaries are deposited into our respective accounts via direct deposit. Those of us who receive cash always ensure that we deposit the money into our bank account afterwards. Whenever we receive money, we always want to deposit it in the bank for safety and interest reasons. Banks are your best bet when it comes to safeguarding your money. However, after depositing your money in this financial institution, who becomes the sole owner after that?
Based on a law established more than 200 years ago, money deposited in a bank account isn’t yours but a bank’s property. As a depositor, you become an unsecured creditor holding IOUs or promises to pay.
There are several misconceptions regarding what banks can do with your money and what they cannot do. Some people say that banks often steal depositor’s money. Some say that banks withdraw depositor’s money without their consent. There is also a suggestion that the money you deposited in an account owned by you is not yours but that of the bank. How true is that? In fact, how can that even be possible? Well, while such an assertion is difficult to swallow, the truth will shock you (like it shocked me when I found out years ago). But, you’ll have to read on to find out.
Can the IRS See Your Bank Account?
Who Owns the Money in Your Bank Account?
Thieves are one of the greatest threats to your money. For this reason, many of us would likely deposit our money in the bank rather than under our bed or in a vault in our basement. When you deposit money in the bank, you trust the bank to keep it safe and give you means to withdraw, transfer or use it when needed.
Money deposited in a bank is technically yours. However, there may be another twist to such a claim. And that is what we are about to find out. But, before we jump into that, why don’t we consider what a bank is.
What is a bank?
A bank is a financial institution that receives deposits from the public repayable on demand and invests or lends the money. It also offers various other services to its customers, such as collecting checks, drafts and bills, making payments based on a directive from its customers, discounting bills of exchange, accepting valuables for safe custody, etc.
The bank must reimburse the money on demand to respective depositors. Banks help in mobilizing the resources by taking the deposits and using such funds by profitably employing them. A concern is not regarded as a bank if it carries out banking business only as an ancillary to some other primary business.
To understand a bank properly, you must understand what they do.
The Important Duties of a Bank:
- Obligation to maintain proper records: proper records should be maintained by the banker concerning all the transactions that the customers initiated with the bank.
- Obligation to alert the customer before closing the account: A bank cannot shut the customer’s account without providing reasonable notice, even if the bank has severe consequences to the customer.
- Obligation to adhere to customer’s directives: It is a legal obligation of the bank to adhere to instructions given by the customers because a contractual relationship exists between the bank and the customer.
- Obligation to maintain secrecy: Bank should not divulge the details relating to the customer’s account to any outsider or unknown individual because such details, if revealed, can affect the customer’s business. Banks can divulge the information when practices amount banks approve of such disclosure or when the law requires such disclosure to be made.
- Obligation to honor checks: It is the statutory obligation of the bank to honor the checks to its customers up to the amount standing to the credit of the customer’s account. Bank has to compensate the customer if it decides not to honor the check.
Having understood what a bank is and the duty they perform, let’s consider the main purpose of this article. Who owns the money that you keep in your bank account?
Why this question may seem easy-breeze, I bet the answer you’ll provide would be wrong. And this is because many of us believe that the money we deposit into our bank accounts is ours. However, that isn’t the case.
Though few depositors realize it, legally, the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes that of the bank, and we become unsecured creditors holding IOU’s or promises to pay.
You should also note this: in the banking realm, the verbs “deposit” and “withdrawal” means a customer is paying money into and taking money out of an account. From a legal and financial accounting point of view, the noun “deposit” is used by the banking industry in financial statements to depict the liability owed by the bank to its depositor, and not the funds that the bank holds because of the deposit, which is shown as assets of the bank.
How Do You Protect Your Money From the Bank?
Under some circumstances, your bank can take money from your account. To ensure that this doesn’t happen, I have highlighted a few ways to safeguard your bank account.
- Keep your debt and savings in separate banks
- Adhere to basic cybersecurity measures
- Monitor your bank account every day
- Track paper statements
- Use 2FA to keep your account safe
- Keep sensitive banking details to yourself
- Pay off debt
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Do Banks Have Their Own Money?
You and other depositors deposit most of the money held by banks. After depositing your money, banks usually lend it out or invest it to make more money. Since a huge chunk of money sitting in the coffers of these banks is for depositors, you may be eager to know if they have their own money.
Banks have their own money, like another establishment. The profit generated from your money, including that of other depositors, can be regarded as theirs regardless of whether the profit was made off your money.
You should also note that banks don’t keep much money in their vault. The money they receive is often sent out to make more money.
