Comment by delinka | Hacker News Reader

Comment by delinka | Hacker News Reader

Someone please explain to me how this "holding people's cash lets you earn interest" bit.

In traditional banking, you put money into savings and get a low return interest rate, or you commit to leave your deposit for a longer term to get a higher rate of return (Certificate of Deposit or "CD.") The reason this works is that the bank can now leverage your deposit with the Federal Reserve to borrow money to loan to others. So they take the interest the Fed charges, add some percentage to compensate depositors, add more to make a profit, and charge the consumer borrower a certain interest rate.

Some banks offer interest on their draft accounts (usually called "checking" accounts) but not many. And lots still charge a monthly fee for the privilege of keeping your money with then if your balance falls under a certain percentage.

So are you people saying this company is in the loan business? Or that their bank is providing them with an interest-bearing account for operating their business within? In the latter case, the margin would be so thin as to me non-existant.

Some banks offer interest on their draft accounts (usually called "checking" accounts) but not many

Not debating the rest of your post, but in lots of European countries you will find the exact opposite. That is, almost noone provides zero-interest accounts. Because those who didn't give interests, even on checking-accounts, quickly found themselves losing most of their customers. Basically markets and competition in action as they should work.

So don't be too eager to extrapolate the (reasonably backwards, technologically under-developed and un-modern) US banking industry to a global de-facto statement. It usually doesn't hold ;)

I mean... You guys still use cheques. What's up with that?

Only old people use checks, or when you need to send money through the mail (which is almost never). It can be handy to be able to give someone an amount of money that isn't limited by the amount of cash you have on hand, and without requiring them to have anything more complicated than a bank account to receive the money (and even that is optional if you use a check cashing service).

Which is not to say that the US banking industry isn't backwards and bizarre.

> You guys still use cheques.

Only old women do that. Usually while in front of you when attempting to pay the cashier.

> You guys still use cheques

So do the French. Cheques are very convenient in several usecases. For safety deposits they're brilliant: You write the owner a cheque for X hundred euros or whatever, and if at the end of your holiday all is good, he gives it back and you tear it up. They're also great for paying largish sums of money to people who don't have credit card machines (when buying second hand goods for example)

You don't have to be in the loan business to make money on the float, you just need to invest it. Say you have $100M of revenue per month and are paying out all $100M of it in 60 days. You can very safely keep the float in an interest-bearing account earning, say 3%, giving you $500k/mo. Because your revenue stream is constant, so is your investment. In practice you would also need to buy some insurance (FDIC won't cover you and surely there are some regulations here), but that's the idea.

See clearing banks. When transferring monies between unrelated accounts, and often financial bodies, the amount is held in clearing bank limbo. One reason for this is that so aggregated amounts from one entities account can be offset against another entities. Where for example bank A transfers X to bank B, and the same amount X within the clearing time is a transfer from B to A, the amounts are adjusted, smoothing capital flow.

The more pertinent fact in respect of your question is that while your funds are being held in this state, the interest available accumulates to the originator A. Not your account from which the fund was withdrawn.

Reply on news.ycombinator.com