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What is banking? |
Economy
Have you ever gone to a bank with a grown-up? You may have noticed some people bringing money for the bank to keep safe. You may also have noticed others leaving the bank with money. A bank is a place where people deposit (put in) and withdraw (take out) money. In fact, banks perform many important money-related duties! Banking is the process of accepting and protecting money owned by individuals and organizations, then lending this money to others to earn a profit.
But why would the bank lend out the money you’ve trusted them to protect? When you put your money in a bank, it doesn’t just sit in your account. After all, you are lending the bank your money! In exchange, the bank pays you money called interest. The more money you keep in your account, the more interest you earn.
Just as you’ve lent the bank your money, the bank may take your money, as well as the money of its other customers, and lend it out. For example, banks loan money to businesses that need funds to get started. Just as you get paid interest for lending the bank your money, the bank charges interest to the customers it lends money. In this way, banks are able to earn money of their own and be successful businesses that continue to serve you!
If banks lend out your money, what happens if you need it back? The
good news is that banks are required to keep a certain amount of money
on hand at all times, and the government helps protect the value of the
money you put in the bank. If you need your money back, you can withdraw
it!
Do you have to enter a bank in order to
deposit or withdraw money? No! Some people enjoy using drive-up teller
services so they can bank from their cars, while others do banking at an
ATM machine they approach in the car or on foot. Many banking customers
are able to use their computers to do some of their banking online!
