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Explain the concept of banking.

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honeybunny27 | Student, Grade 10 | (Level 1) Honors

Posted June 9, 2013 at 6:28 PM via web

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Explain the concept of banking.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted June 9, 2013 at 6:47 PM (Answer #1)

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A bank is a company that provides financial services of various sorts to various types of customers.  Its major function is to gather money from various people and to lend that money out to other people.

One of the most visible things that a bank does is to take deposits from customers and act as a place for them to store their money.  The customers put money in the bank and then can draw that money out (by check or in cash form, for example) when they need it.  The bank provides them services in that it allows them to have a secure way to store their money and convenient ways to get that money back or to pass it on to others.

Banks use the money that has been deposited by customers.  This is one way in which banks make money (they also make money through various fees that they charge customers for some services).  A bank will take in money and hold it while paying only a very low interest rate to depositors.  It will then lend that money out to others.  It may loan it to someone who wants a mortgage, for example, or to a business that wants to expand.  It charges a much higher interest rate to lend the money than it pays to borrow it.  In this way, it makes money.

Banks are a very important part of our economy because they provide us with many financial services that make it easier to use our money.

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honeybunny27 | Student, Grade 10 | (Level 1) Honors

Posted June 10, 2013 at 12:47 AM (Reply #1)

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thank you very much

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