I remember as a kid when I first opened a savings account. I think it was First Federal, at the branch in the mall (correct me, mom, if I’m wrong). I was really surprised that just by giving some money to the bank I’d get more money back over time. It didn’t really make sense to me, but I accepted it as just another one of the thousands of concepts we’re introduced to as children that we don’t have the time or tools to question. So I’d like to revisit this, in light of recent economic events:
Where does the added value come from on a savings account or a certificate of deposit? How can a bank guarantee any rate of return? Is it simply assumed that the bank’s business will grow enough over time that the value gets produced? Is that always a realistic assumption; is there not risk involved here? Are banks essentially shell games where Peter deposits money to pay for the interest on Paul’s CD?
Somebody help me out here. I was never good with numbers.
1.) I also wondered why banks and churches were so intent on being “first” – “First Federal Bank,” “First National Bank,” “First Baptist Church”…meanwhile you never hear of “First Pizza” or “First Burger Joint.” I’m still kind of mystified by this, actually. It must have something to do with seriousness. You can put some personality into Little Caesar’s pizza, but don’t go naming your bank or church “Luigi’s Famous.” Interesting historical turnabout: “Caesar” is now head of a small pizza empire while his former Christian prisoners now dominate much of Western civilization and pretty much founded the American way of life.
2.) And don’t say the FDIC. That’s not what I mean.