The Minimum Cash Banks Keep in Reserve

We all know that banks use the money that they have on hand to make loans to other bank customers, and that the money you deposit in the bank does not actually stay there, but goes back into circulation. However, if you were to go into the bank tomorrow and withdraw your entire account, would the money be on hand to give to you? How much physical cash does a bank keep on hand for daily use?


The answer to that question, of course, varies according to the bank on a day to day basis. But by law, banks are required to maintain a certain percentage of their deposits on hand in the event that depositors request their money back. This is called a bank reserve and the amount legally required to be held in reserve varies depending on what country you are in. In the United States, reserves are set at 3% for checking accounts and 0% for savings accounts. How much the bank keeps on hand in your local branch every day is not information that bank consumers need to know and so it is not information that is widely circulated.

This is not to say that if you and the other depositors at your bank were to demand your deposits back immediately, that you would not be able to get your money back. Deposits at United States banks are insured by the FDIC up to $100,000. So if the bank were to fail, you would get your money back from the bank eventually. The truth is, when banks fail, they are generally bought out by other banks before depositors even need to worry; also, in cases where bank failures are way too big the FDIC steps in and sells that bank to another bank, or may operate the bank as a federally owned entity for a time being while they search for a buyer. The transition to a new bank is typically seamless and you may not even notice the difference.