💸 Your Money Doesn’t Just Sit There

When you deposit money, the bank doesn’t lock it in a vault like treasure. Instead:

• They lend it to other people or businesses who need loans.
• These borrowers pay interest to the bank.
• The bank then shares some of that interest with you—as a reward for trusting them with your money.

💡 Think of it like renting out your bicycle. While someone else uses it, they pay you a small fee. That’s interest!

⏳ Why You Earn Interest

• Your money has time value—it’s worth more today than tomorrow.
• You’re also taking a small risk by letting the bank use it.
• So, the bank compensates you with interest for both time and trust.

🧠 Money isn’t just paper—it’s potential. And potential has value.

🛡️ How Banks Stay Safe

Banks can’t lend out all your money. They must:

• Keep a portion of it with the Reserve Bank (called a reserve requirement).
• This helps make sure they always have enough to give back when people want to withdraw.

🏛️ It’s like keeping emergency snacks in your backpack—you don’t eat them every day, but they’re there when you need them.

🤝 The Role of the Reserve Bank

The Reserve Bank is like the guardian of trust in the financial system:

• It monitors banks, sets rules, and steps in during emergencies.
• It helps make sure banks don’t take wild risks.
• It gives people confidence that their money is safe.

🔐 Trust is what keeps the whole system working.

💰 Fun Facts About Bank Deposits & Money Markets

The “Bank Run” That Inspired a Movie

In 1932, during the Great Depression, a real-life bank run in California inspired the dramatic scene in It’s a Wonderful Life. People panicked and tried to withdraw all their savings, forgetting that banks don’t keep everyone’s money in a vault—they lend it out. The irony? That movie later helped restore public trust in banking.

A bank run is when a large number of depositors try to withdraw their money at the same time, because of fear or loss of confidence in the bank. When this happens, the bank’s reserves may not be enough to cover all the withdrawals, causing a vicious circle where even more depositors want to withdraw immediately.

The Corporation for Deposit Insurance (CODI), a subsidiary of the South African Reserve Bank (SARB), was launched in April 2024. It protects qualifying depositors with up to R100,000 per depositor per bank in the unlikely event of a bank failure.

Money Market Funds Once Broke the Buck

A money market fund is said to "break the buck" when its net asset value (NAV) falls below R1 per share. This is very unusual because Money market funds are designed to keep their value at R1 per share. In August 2014, at least 10 South African money market funds "broke the buck" after suffering losses from exposure to senior debt issued by African Bank Investments.

The event highlighted that even money market funds, generally perceived as ultra-safe, carry some credit risk. The Association for Savings and Investment South Africa (ASISA) subsequently implemented changes to protect money market funds from similar scenarios in the future.

The Origin of the Term “Deposit”

The word “deposit” comes from the Latin deponere, meaning “to lay down.” Every time you make a deposit, you’re laying your money down for a nap. Hopefully it wakes up with interest.

The word "deposit" is used in different contexts.
A bank deposit is an amount of money you place into a bank or other financial institution for safekeeping. In return, the bank may pay you interest on these funds.

A deposit paid to a landlord, is a different type of transaction. In a rental agreement, the deposit is a security payment held in trust by the landlord. The landlord is not borrowing the money but holding it to cover specific potential costs (for example, unpaid rent and damage to property). The deposit is refundible at the end of the lease period if all conditions are met. Under the Rental Housing Act, the landlord is legally required to invest the deposit in an interest-bearing account. The interest accumulated must also be paid back to the tenant along with the deposit, provided all lease conditions are met.

🌱 Final Thoughts

Every investment carries some level of risk—even the ones that seem safest. Bank deposits and money market funds are generally low-risk options, but they’re not entirely risk-free, as events like bank runs and 'breaking the buck' have shown. If you're willing to take on more risk, you might earn higher returns—but that trade-off must be understood and managed wisely.

What’s even riskier? Hiding your money under your mattress. Inflation will quietly erode its value over time. Spending everything you earn without saving or investing guarantees financial insecurity.

Building wealth requires a balance: protecting your money, growing it, and making intentional choices that support long-term stability.