You can’t withdraw all your money from your bank account because it is constantly being invested and reinvested, but how come banks are never ‘down’ on these investments in the same way the average person is with their investments? Are they protected by government guarantee so they can just reap huge profits by investing constantly without risk?
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For the most part, banks invest in items that are low(er) yield and lower risk. This allows them to consistently turn a profit and ensure they don’t violate their reserve requirements if there is a substantial swing in stock value.
A bank’s primary method of earning money is the issuance of loans. Right now, the yield on a 30-year fixed is 8.13%. After they pay out interest on their accounts (which can be as high as 4% these days), they are still clearing over 4% as profit. Notwithstanding the housing bubble a few years back, home loans are fairly low-risk investments (as there is a valuable asset backing the loan which can be sold in case of default). It is very difficult to lose money on home loans.
Now, of course, that isn’t going to get you the same yields as the market (the S&P 500 is up almost 15% this year) but the less risk you take, the less reward you potentially get.
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