Sound Banking System (3) No Interest

Banks that are operating according to this principle would not be able to lend out money, because they do not own it. This means that they would not be able to pay interest on money deposited with them. To cover the costs of providing their services, transaction banks would need to charge a service fee. Depositors would look for banks that provide the best security and service for the most reasonable fee. Banks that provide better security and a wider range of transactions would be able to charge more. However, bank fees would be quite small. People would be willing to pay the price for a secure and reliable banking system.

Depositing money on call would become less attractive option, because deposits would face bank charges, but no interest. To avoid this problem, people would only deposit money on call, if they expect to use it immediately. If they do not want to use the money immediately, they would be better to deposit it at loan bank for a fixed term (even if only a few days) so it can be lent out and to earn interest.