What is a Bank?

 

I heard my parents talk about putting their money in a bank. But what is a bank anyway?

A bank is the type of financial institution that gives loans, which is money that they lend you which over certain amount of time, you pay them back with interest.

And they also take deposits. For example, you can give them money, which you can put into either checking or savings account, or a CD which is a certificate of deposit.

Banks also issue checks and debit cards so that you can access your money.

Well, is there anything else that banks do?

Banks can also issue credit cards, give mortgages – which is a loan on your house, other types of loans and issue banker’s checks.

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Well, how do banks even make money?

The difference between the interest that they charge on the loans that they give you, and the interest that they pay on deposits that you make in a checking account, saving account or CD, is one of the ways that they make money.

They also make money by fees that are charged for services like issuing banker’s checks.

Well, are there different types of banks?

Yes, there are. There are traditional banks with branches that you could visit, or you can visit them online at their website. But there also internet only banks, where all of the transactions are made completely online and they do not have any physical presence.

Well, I keep hearing about investment banks. Well, what are they?

Investment banks are banks that work mainly with companies. But that’s a topic for another time.

You may also like:  What is an IPO or Initial Public Offering?

Thank you very much for telling me about a bank, Wall Street Willy.

You’re welcome, Sooper Cooper. Remember, finance is your friend!

Podcast: What is a Bank?

What is a Bank
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