What is the difference between cash and money in a bank account?

Is there any difference between cash and money in a bank account? Is keeping money in cash any different to keeping money in a bank account?

Hi there,

A bank account is either an investment in the form of a loan from you to a bank by which you hope to earn a return (in the case of savings accounts, fixed deposits and medium-term notes) or it is a service which allows you to transfer assets, obtain loans or better manage accounting (in the case of private accounts, current accounts and business accounts).

You cannot “put your money in the bank” because a bank is not a vault. It is simply an investment vehicle and a service provider. You can invest in a bank, just as you would invest in any other company (via stocks or bonds, for example), and ideally your money will be put to profitable use and the bank will be able to pay a return on your investment.

Giving money to a bank in exchange for account credits is not the same thing as holding money in cash. Cash - together with reserves held by a central bank on behalf of commercial banks - constitutes a currency’s monetary base. The account credits which you get from a bank are not base money and are not actually legal tender.

For this reason, it is helpful to look at placing money in bank accounts as an investment - just like buying stocks or bonds or granting loans, rather than safely storing your money.

The only difference between bank accounts and other investment vehicles is that in many countries, some or all banks participate in some form of depositor protection scheme. These schemes guarantee a portion of the debt owed by banks to their account holders. Swiss retail banks participate in the depositor protection scheme managed by Esisuisse. Bank depositor protection schemes help to reduce the risk of investing in banks and this, combined with the ability to withdraw money in cash at any time (not all bank accounts allow this) makes bank accounts a relatively low-risk investment vehicle.

With regards to financial services, such as money transfers, escrow services, trusts, accounting services and loans, the services offered by banks (private accounts, for example) are similar or identical to those provided by other financial services provider (such as wire transfer services, moneylenders, fintech services, trust managers, etc.). Banks charge fees for services just like all other service providers.

As with any services offered, whether they are useful or necessary depends on your needs as a consumer. For example, if you prefer to hold your money in cash rather than invest it, you could make use of a bank safe deposit box - available at many Swiss banks for a fee.

Best regards from Moneyguru

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