Deciphr Academy
Track 1 · Module 1 · Lesson 2 of 6 · 5 min read

Who keeps track of the money in my bank account?

Short answer

Your bank does. Bank deposits are mostly recorded electronically, and when you pay by card the bank simply changes its records.1 Banks then settle with each other through accounts at the central bank.1

Central bankreserves for bankspayments between banks settle hereBrindlecovepays $4,000Anais paid $4,000Pellowmark Bank ledgerBrindlecove$116,000Ana$5,500cardcreditOne firm keeps the list. Everyone trusts it.
Fig. 2. Brindlecove pays Ana by card. Pellowmark Bank changes two lines in its ledger. When customers use different banks, the banks settle with each other at the central bank.

A ledger is a list of who paid whom

A ledger is a collection of transactions. For centuries, people kept ledgers with pen and paper.2 Today, ledgers are stored digitally. They often sit in large databases run by a trusted third party: the owner of the ledger.2

Your bank keeps your balance

In 2014, the Bank of England said most money was not cash. In the UK at the end of 2013, 97% of the money held by the public was in bank deposits, not notes and coins.1 These deposits are mostly recorded electronically.1

When you pay a shop by debit card, your bank lowers the amount it owes you. The shop's bank raises the amount it owes the shop.1 You have paid with your deposit without turning it into cash first.1

The Bank of England also said that banks create most money, in the form of deposits. When a bank makes a loan, it simply raises the borrower's deposit balance. At that moment, new money is created.1

How we work out balances after a payment

Take the payer's balance and subtract the payment. Add the same amount to the payee's balance. The quizzes use this method.

Banks keep accounts at the central bank

Banks pay each other using a different kind of money: central bank reserves.1 At the Bank of England, reserves are just an electronic record of what the central bank owes each bank. When one bank pays another, the Bank of England adjusts their balances.1

The BIS calls this a two-tier system. People and firms pay with bank deposits. Banks pay each other with central bank reserves.3 Trust in bank deposits comes from things like regulation, supervision and deposit insurance.3 In the US, deposits are insured to at least $250,000 at each insured bank.4

What you have to trust

When one firm owns a ledger, you have to trust that firm.2

  • You trust it to back up the records, so they are not lost.2
  • You trust it to check that each payment is valid.2
  • You trust it to include every valid payment it receives.2

The Bitcoin paper of 2008 saw a cost in this. It said online payments rely almost entirely on banks and payment firms acting as trusted third parties.5 Because those firms must settle disputes, it argued, payments are never completely final, and that pushes up costs.5

Our viewThis system works well most days. The point is not that banks are bad. It is that someone has to keep the list, and everyone else has to trust them. Blockchains try to change who keeps the list.
Sources
  1. Money in the modern economy: an introduction. Bank of England, Quarterly Bulletin 2014 Q1 (McLeay, Radia and Thomas), 2014.
  2. Blockchain Technology Overview (NISTIR 8202). US National Institute of Standards and Technology (Yaga, Mell, Roby and Scarfone), October 2018.
  3. Cryptocurrencies: looking beyond the hype (Annual Economic Report 2018, chapter V). Bank for International Settlements, 24 June 2018.
  4. Deposit Insurance. US Federal Deposit Insurance Corporation.
  5. Bitcoin: A Peer-to-Peer Electronic Cash System. Satoshi Nakamoto (a pseudonym), bitcoin.org, 2008.
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General education built from the publicly available sources listed above. Not financial, legal, tax or investment advice. Naming a company, project or regulator is not an endorsement either way. Last checked 2026-10-22. Terms and disclaimer.