Much in the news lately about unfair bank charges. Plenty about overdraft charges – but what about interest?
Let’s examine why we have interest on loans. If you borrow 500K from your mate, while you have it, he doesn’t have use of it. He can’t use it to further his own interest and so it isn’t in his interest to loan it to you. In order to make it in his interest, you have to offer him compensation. You not only agree to return his money after a set time, then, but with extra money on top as compensation. That extra money is, quite literally, his interest in doing the deal.
All fair enough.
When you get money from a commercial bank, though, none of this applies as you aren’t loaned anything. Instead the banks create new money in your account. This isn’t the same thing as lending you what’s theirs and so being deprived of the use of it. They aren’t deprived of this money in any way; they never had it in the first place. Why should they have any compensation then? They didn’t lose out in any way. There is no actual or potential loss.
I’m aware that it is recorded in their accounts as a debit, (or whatever), but that’s just the way banks choose to do their accounting. They can just as easily decide not to. That’s the way things developed because it suited the banks, not because it was fair or appropriate.
So where’s all the complaining about that?