Banking, banks, savings and loans, credit union etc. Do the commercial banks own these words?
Think about the word – Bank. What does that mean? You see we have blood banks, memory banks, snow banks etc. A bank can also mean a slope that goes to a body of water, like a river bank.
Commercial bankers do not own the word bank. What we would like for you to understand today that banking is a function. Banking in the sense of money is an action where someone deposits money into a pool, that which can then be loaned out to generate revenue.
In modern times customers of a bank or credit union deposit their money (which is actually a liability on the banks balance sheet). Then through the use of fractional reserve lending the bank can create loans based off of the allowable fraction determined by the central bank. This is approximately around 3% of deposits to the commercial bank.
Reserve requirements are the amount of funds that a depository institution must hold in reserve against specified deposit liabilities. Within limits specified by law, the Board of Governors has sole authority over changes in reserve requirements. Depository institutions must hold reserves in the form of vault cash or deposits with Federal Reserve Banks. (source: www.federalreserve.gov/monetarypolicy/reservereq.htm )
In the United States, a reserve requirement(or liquidity ratio) is a minimum value, set by the Board of Governors of the Federal Reserve System, of the ratio of required reserves to some category of deposits held at depository institutions (e.g., commercial bank including US branch of a foreign bank, savings and loan association, savings bank, credit union). The only deposit categories currently subject to reserve requirements are net transactions accounts, mainly checking accounts. (source: Wikipedia )
Your deposits into your current bank account go on to become loans for your friends, neighbors, and even yourself. Most people think that banks earn the difference of what they pay you in interest and what they charge in interest on loans. This is only partially true. Because of the fractional reserve system banks can earn hundreds of percent based off one deposit.
I explained all this so that you will know that banking is a function and not a place downtown with a large nice building where people in suits go to work everyday called a Bank.
Once you understand the Banking function you can then go on to learn how you can take advantage of “Becoming Your Own Banker”. Meaning, you create a pool of money that builds over time, then when you need access to money you can get said money. When created properly you will have more control, you will be able to capture the interest that is normally going to the commercial banks as profits which in turns gives you even more money in the future.
We at Dynasty Wealth Partners use the Infinite Banking Concept as the cornerstone of wealth creation. In the book “Becoming Your Own Banker” by Nelson Nash, Nash describes how a majority of people in the US today pay more than 34 cents out of every dollar to service their debt¹. This could be credit card debt, loans, mortgages etc.
You may say, well my credit card is only 8% I’m not paying that high of interest. It’s not the rate of interest that is the problem it’s the volume of interest. For an illustration, go to any loan or mortgage calculator and type in a loan amount. Then amortize that loan over any given period. For instance a $100,000 mortgage for 30 years would have a monthly payment of $536.82, of which $416 of the first payment is interest and only $120 is paying down the principle. This goes on and on for many years. As a matter of the fact the interest and principle payments do not become equal until year 17. FOR THE FIRST 17 YEARS YOU PAY MORE IN INTEREST THAN YOU DO IN PRINCIPLE.
What we do at Dynasty Wealth Partners is teach you how to take that interest and put it to work. Your need for finance over your life time is much greater than your need for insurance. You will pay hundreds of thousands of dollars to interest. If you could capture that interest, your wealth will grow into the millions.
To conclude, Dynasty Banking is designed to help set you free from interest.
¹ Becoming your Own Banker, 5th edition page 18.