How Banks Work

1
How Banks Work
2
The Role of Banks

• Commercial Banks are in business to earn a profit

3
The Role of Banks

• Banks provide security
• Protect your moneys purchasing power
• Banks are regulated
• Banks lose owners money first
• Banks must set aside some of the deposits
• Most deposits are insured
• Federal Deposit Insurance Corporation (FDIC)

4
The Role of Banks

• Banks make borrowing easier
• Savers deposit money where it is safe and earns
  interest
• Banks then lend the money to reliable borrowers
  who pay interest to use it

5
Types of Money

• Terms
• Currency Paper money and coins
• Check An order to a bank to pay a specified sum
  to the person or business named on the check
  the Payee
• Overdrafting Not having enough funds in your
  account to cover the checks youve written

6
What Banks Can Offer

• Demand Deposit
• Checking Account
• Direct Deposit
• NOW Account / Super NOW Accounts
• Savings Accounts
• CDs
• Loans
• Mortgage / Home Equity / Auto

7
Finance Companies

• Are not banks, but do create loans
• Could be more specialized
• Mortgage companies
• Charge Higher Rates
• Borrow to those with poor credit ratings
• Usually more flexible with loan terms
• Create longer payback periods for smaller monthly
  payments