A chap I spoke to the other day was of the opinion that savers were wrong to ‘expect free money’ from a bank simply for possessing savings. We then moved on to the EU, and he posited the theory that the EU was the reason there had not been a war in Europe since 1945.
I disagreed. Here’s what I said:
‘My dear chap, firstly, savers do not ‘expect’ to get more money simply by possessing money. They lend money to a bank in return for a small rate of interest. This protects them from theft and ensures that their money doesn’t depreciate in real terms relative to the rate of inflation. The banks then use this raised capital to fund projects that earn considerably more than the rate of inflation, thereby generating profit. This is why banks are so keen to attract new customers with special deals on accounts. If I lent you, say, ten thousand pounds so that you could embark upon some higher risk venture and make a high return on my money, would it not be reasonable to expect you to pay me at least some small rate of return so that, at the very least, I am not losing money in real terms?’
He remained unconvinced.