HYIP vs Banks
Some people prefer to take risks with the possibility of loss rather than waiting for a small percentage of profit over an extended period, while others, on the contrary, would rather entrust their funds to professionals and receive a modest but guaranteed income over an extended period. Does it sound familiar? This article will discuss hyips versus banks, their definitions, and differences.
What is a bank?
A bank is a financial institution that carries out various types of operations with monetary funds, securities, and provides financial services to governments, legal entities, and individuals. Banks are created to generate profit through the contributions of depositors. How is it not a financial pyramid? Well, here's how. Banks are legally allowed, through a special license, to attract funds from legal entities and individuals for the purpose of their further use, while financial pyramids are not.
How a bank operates
We assume that it is important for everyone to know how banks make money. Let's explain it in a fairly simple and understandable way.
You "lend" money to the bank when you open a current or savings account. The bank gives you a small interest rate on this account, let's say 1%.
They lend money to people who buy homes and other loans. They charge, let's say, 7%.
As you can see, the difference between 7% and 1% is colossal. Taking into account the expenses for maintaining branches and bank vaults, that's their profit.
Let's give an example with numbers. If you deposit $100,000 in a savings account at the bank, you can earn $1,000 per year. They lend $100,000 at 7% and earn 7% - 1% = 6%, which is $6,000 per year from your deposit.
We've explained how a bank makes money in simple terms. So, once again, you lend them money, which they "invest" by lending it out and earning 100% of the difference every year until the deposit term ends according to the contract and you withdraw the money.
What is a HYIP?
HYIP (High Yield Investment Program) is not just a word, but an abbreviation that stands for High Yield Investment Program in English, which literally means a high-yield investment program.
In common language and at the legislative level, HYIPs are referred to as financial pyramids.
HYIPs position themselves as investment projects that offer anyone to deposit funds into their fund and quickly multiply their capital. We hasten to warn you that there is no real activity behind such projects and cannot be. They operate at the expense of subsequent investors (the principle of a financial pyramid).
How HYIPs Work
Practically all financial pyramids are built on what is known as the Ponzi scheme (named after the famous adventurer of the early 20th century), which the creators try to hide from potential depositors by various means. The principle is to constantly attract more investors, whose investments are used to pay interest to those who previously invested in the financial pyramid. To maintain profitability at the same level, an increase in the number of participants is required.
Such structures are called pyramids for the reason that a small top, including the creator of the financial pyramid and a small group of participants (depending on the level of the financial pyramid), receives the lion's share of financial contributions. In fact, almost everything can be compared to financial pyramids. For example, the dollar, banks, but they are associated with an illusion of stability. This is how history has developed.
Which is Better?
We cannot give a definitive answer to this question, as everyone should make their own conclusions. It is logical to assume that we are more inclined towards HYIPs than banks because we have been a blog monitoring investment projects for many years. We chose HYIPs because here you can achieve greater income in a short period of time compared to banks over a long period. In banks, you can waste time and earn a small percentage (not accounting for inflation) over a long period.
This article turned out to be not educational, but an expression of our point of view on banks and financial pyramids. We hope that everyone can make their own choice, and the article was useful and interesting for you. In the end, it's worth repeating that almost everything is a financial pyramid, including banks and the dollar. Perhaps, in the future, we will write a separate article on this topic.
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