subject: All About Banking [print this page] A bank is a place where money can be put for safekeeping, but this is only one of the things banks do. When you hear the word "bank," you may think of an important-looking building full of people counting money; but a "piggybank," or even a cookie jar half-full of pennies, can also be called a bank. A large business, however, cannot use a cookie jar for a bank. It needs the help of a large, modern bank. What banks do for the US Without banks we could not live as we do. Banks not only keep our money safe, but also help us use it easily. They also lend money to people who can repay it. Of course, banks do not help us for nothing. Like the grocer and the barber, they make a profit from what they do. A large amount of money cannot be carried safely in a pocket, or kept in a drawer, so businessmen, housewives, and even children, put money into a bank. This is called making a deposit. Banks that take deposits from the public are called depository banks. These banks put the money that a person deposits to his credit-that is, they make a record that they owe him that much money. A small book is also given to the depositor. It is called a passbook, or bankbook. In the book, the bank marks down the amount of money he deposits. A person can put his money into a savings account and receive interest, which is payment the bank gives him for the use of his money. Money can also be put into what is called a checking account. Most bills these days are paid by checks, which are written orders to the bank to pay an indicated amount of money to whoever is named on the check. When the bank pays a check, it reduces the amount credited to the person who has made out the check. The use of checks saves much trouble. If a man in Boston wants to buy a stove from a factory in Ohio, he does not have to send paper money and coins to pay for it. He can send a check. The factory's bank collects the amount on the check from the bank of the Boston man. If we had no checks, people would be hurrying all over the country with bags of money to pay for things. There would be little time for anything else. When we put money in a bank, the bank has the right to use part of our money to lend to other people. The bank charges these people a higher rate of interest than it pays to its depositors. This is one of the chief ways a bank makes its profit. The bank does not lend all the money that people have deposited. A bank must keep some money on hand at all times. Depositors can take out money when they need it. Many businesses could never have opened if it were not for banks. Let us say a man needs $1,500 to open a bakery shop, and he has only S1,000 dollars. He needs $500 more. If the bank thinks he can repay a loan, it will lend him the extra money. He can then start his business, and pay back the loan out of what he earns. Banks do a great deal of good by lending money. If money were just kept in huge safes, it would be of little use to anybody. When it is lent to people and businesses, money helps increase the amount of business, provides jobs, and makes it possible to manufacture many new products
All About Banking
By: David Bunch
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