Reserve.
In plain English
Reserves are the money a bank holds back instead of lending, kept as cash in its vault or on deposit at the Federal Reserve. They are the bank's cushion for covering withdrawals and payments. Banks earn money by lending out most of what you deposit, so they hold only a fraction as reserves. How much they keep is shaped by regulation and by their own caution, and the interest the Fed pays on reserves is one of the levers it uses to steer the economy.
01Why it matters
Reserves are the buffer that lets a bank hand you your money on demand, and how banks manage them ripples into interest rates across the economy.
02The math, step by step
You deposit 1,000 dollars. The bank might lend out 900 of it to other customers and keep 100 as reserves to cover withdrawals.
03What this is NOT
Reserves are NOT your specific deposit waiting for you. Banks lend out most of what you deposit and hold only a fraction in reserve; your balance is a promise the bank will pay, backed by deposit insurance.