how do you get interest on deposits

The only limited list of country’s where the bank pays for the deposits made. The body that controls all the bank RBI the central bank of India which manages the supply of money in the economy of our country. The money supply is controlled by the central bank through the instruments of monetary policy. PSU’s play an important role in the banking system 19 nationalized bank by RBI known as public sector banks. The banking system in India has evolved over years through digitalization in banks. But let’s understand evolution. For a better understanding lets go for a flashback, in the time of the rule of kings they used gold and silver coins as currency which changed to metal coins later and into paper notes more later. Now the currency is just in a digital form, which means no printing cost. The payment you make is not immediately credited to the receiver’s account but is debited on the same spot. The UPI payments take time the moment you pay money to the merchant they will get a text of receiving the money but all the transactions of the day will be collected and then on the next day the total amount will be credited to the merchant’s account. Ok, let’s make it simple with a numerical example, suppose if a merchant sells only one item in his shop that is chocolate of 50rs if 30 people in a day bought the chocolate considerin they all used UPI for payment that he will not get the money 30 times he will get the money of total sum i.e. 30.50=1500, he will get 1500 as total amount the next day credited in his bank account.

What if I tell you that banks don’t require actual paper money for the transactions, they just have to change the digits in their respective entries. On let’s make this simple too, consider a paradox that in a town there is no economic activity that means people are out of money, one day a rich man came into a hotel of that town, the receptionist made a deal that he needs to pay 1000rs as advance and he can ask that back if he doesn’t like the room so the may use UPI and paid the sum. Now the receptionist went to his cook and paid his due salary which was 1000, the cook was got ill month back he was on due there the cook paid that to the doctor, now the nurse working in the clinic of the doctor owed 1000 salary due, so doctor paid her, the nurse was living in the same hotel and the money was not paid the amount was exactly 1000 in all the case, so the nurse paid the money to the hotel receptionist and now the receptionist paid the money back to the rich man as he didn’t like the room. So this paradox makes you understand the actual money supply with rs 1000 debt of a total of 4000 was made clear. This is what we call the money multiplier concept, the banks can generate 6 to 7 times credit with a single deposit and they charge interest on the credit given, from the same interest earned the bank pays interest on deposits. The gap of interest on loans and deposits are the profits of the bank. As we discussed the UPI thing the service provider will have that 1500 rs for a night where they can use that money as their own and make profits from that and pay them the next day. Now you may be thinking about how is this possible, but the reality is every service provider and e-commerce does this practice for generating short term profit. For more understanding stick on for the next blog.