I never learned how it works
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Think of it this way. Banks aren’t just a place for you to store money.
They’re actually a money store. They “sell” money. They sell people money NOW for a bit more money LATER in the form of a loan.
But to do that, they need money NOW to loan to someone else.
That’s where you come in. You want somewhere to store your hard earned money that’s safe. The bank will let you and many others like you store their money there where they will then loan it out to others and they keep the interest on the loan. You get a laughable little amount of interest as thanks for storing your money there so they can loan it out to people.
The bank can do this because statistically it is unlikely you and everyone else in town will all come demanding their money at the same time that would collapse the bank.
When you think about a bank foreclosing on someone’s house or collateral and seizing the collateral….it makes you feel even better to realize the bank now owns the collateral…from someone else’s loan…that was lent by the bank…that was actually someone else’s money in the first place.
So banks basically borrow everyone’s money, lend it to someone else, then if you can’t pay, they get to keep it as if the principal was theirs to begin with
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