Banks

Banks are for-profit organizations, which means their goal is to make profit for the owners, or shareholders. 

How do Banks Make a Profit?

Banks use the cash that is deposited in checking and savings accounts, and loan them out at higher interest rates than the depositor is paid. 

Bank Functions:

  • Accept checking and savings deposits
  • Make loans
  • Currency exchange
  • Safe deposit boxes

Checking Accounts 

VS 

Savings Accounts

Checking Accounts: 

Savings Accounts: 

  • Used to pay bills and make cash withdrawals
  • Pay little or no interest
  • Usually come with monthly fees, usage fees, or both
  • Pay interest to the depositor
  • Can be a regular savings account which pays little interest or a certificate of deposit account which pays a little more interest

 The money in checking accounts, savings accounts, and CDs is insured up to a maximum of $250,000 by the federal government.

Loans:

Regulations:

Banks are regulated by the national government and the individual states.

What is regulated?

  • Practices
  • Interest rates
  • Audits and inspections

Types of Banks

  • Retail Banks: Banks that offer their services to the general public. 
  • Commercial or Corporate Banks: Banks that tailor their services to business clients. 
  • Investment Banks: Banks that focus on providing corporate clients with complex services and financial transactions such as underwriting and assisting with mergers and acquisitions. 
  • Central Banks: Central banks are independent institutions authorized by the government to oversee the nation's money supply and monetary policy. 

Source: Adam Barone. How Banking Works, Types of Banks, and How To Choose the Best Bank for You. Dotdash Meredith. 19 August 2022.

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