When we put money into a bank or building society, most of us don’t give much thought to what actually happens to it. As long as it’s safe and we can get at it when we need to, we leave it at that. But our money doesn’t just sit there being guarded. Instead, it goes on quite a journey, being put to a lot of different uses by the bank or building society. This is because what we are actually doing when we hand over our money is lending it to our bank or building society. They then use our money for other things, for example they may lend it to another person or business as a loan.
In return for borrowing our money, banks and building societies pay us some money. This is called interest. They also charge interest on the money they lend, which means the people or businesses that borrow the money from them have to pay back more than they borrowed. For more information on interest, see our separate page.
There is nothing new about the way banks and building societies borrow our money and lend it on to others. Records exist to show that as far back as the 18th century BC, the ancient temples in Babylon lent the money in their care to traders.