What Is a Bank?

A bank is a financial institution that is licensed to accept checking and savings deposits and make loans. Banks also provide related services such as individual retirement accounts (IRAs), certificates of deposit (CDs), currency exchange, 澳洲幸运5开奖号码历史查询:personal loans, and safe deposit boxes.

There ෴are several types of banks including retail banks, commercial or corporate ba൩nks, and investment banks.

In the U.S., banks are re🌺gulat🐓ed by the national government and by the individual states.

Understanding Banks

Banks have existed since at least the 14th century. They provide a safe place for consumers and business owners to stow their cash and a source of loans for personal purchases and business ventures. In turn, the 澳洲幸运5开奖号码历史查询:banks use the ca🀅sh that is deposited to make loans and collect interest on them.

The basic business plan hasn't changed much since the Medici family started dabbling in banking during the Renaissance, but the range of products that banks offer has grown.

Basic Bank Services

Banks offer variousཧ ways to stash your cash and various ways to borroꦕw money.

Checking Accounts

Checking accounts are deposits used by consumers and businesses tꦚo pay their bills and make cash withdrawals. They pay little or no interest and typically come with monthly fees, usage fees, or both.

Today's consumers generally have their paychecks and any other regular payments automatically deposited in one of these accounts.

Savings Accounts

Savings accounts pay interest to the depositor. Depending on how long account holders hope to keep their money in the bank, they can open a regular savings account that pays a little interest or a certificate of deposit (CD) that pays a little more interest. The CDs can earn interest for as little as a fe𝔍w months or as long as five years or more.

It is important to note that the money in checking accounts, savings accounts, and CDs is insured up to a maximum of $250,000 by the federal government through the Federal Deposit Insurance Corp. (FDIC).

Loan Services

Banks make loans to consumers aಌnd businesses. The cash that is deposited by their customers is lent out to other customers at a higher rate of intere🔜st than the depositor is paid.

At the highest level, this is the process that keeps the economy humming. People deposit their money in banks; the bank lends the money out in car loans, credit cards, 澳洲幸运5开奖号码历史查询:mortgages, and business loans. The loan recipients spend the money they borrow, the ꦬbank earns interest on the loans, and the process keeps money moving through the system.

Just like any other business, the goal of a bank is to earn a profit for its owners. For most banks, the owners are their 澳洲幸运5开奖号码历史查询:shareholders. 🎀Banks do this by charging more interest on the lo🎐ans and other debt they issue to borrowers than they pay to people who use their savings vehicles.

✅ For example, a bank may pay 1% interest on savings accounts and charge 6% interest for its mortgage loans, earning a gross profit of 5% for its owners.

Brick-and-Mortar and Online Banks

Banks range in size from small, community-based institutions to global commercia🦂l banks.

According to the FDIC, there were just over 4,200 FDIC-insured commercial banks in the United States as of 2021. This number incℱludes national banks, state-chartered banks, comm♏ercial banks, and other financial institutions.

Traditional banks now offer both brick-and-mortarꦕ branch locations and online services. Online-only banks began emerging in early 2010s.

Consumers choose a bank based on its interest rates, the fe☂es⛄ it charges, and the convenience of its locations, among other factors.

How Are Banks Regulated?

U.S. banks came under intense scrutiny after the global 澳洲幸运5开奖号码历史查询:financial crisis of 2008. The regulatory environment for bank🍃s was tightene🧔d considerably as a result.

Depending on their business structures, U.S. banks may be regulated at the state or national level, or both. State banks are regulated by each state's department of banking or department of financial institutions. This agency is generally responsible for issues such as permitted practices, how much interest a bank can charge, and auditing and inspecting banks.

National banks are regulated by the 澳洲幸运5开奖🅺号码历史查询:🙈Office of the Comptroller of the Currency (OCC). OCC regulations primarily cover bank capital levels, asset quality, and liquidity. As noted above, banks with FDIC 🍌insurance are also regulated by the FDIC.

The Dodd-Frank Wall Street R✱eform and Consumer Protection Act was passed in 2010 following the financial crisis with the intention of reducing risks in the U.S. financial system. Under this act, large banks now have to submit to regular tests that measure whether they have sufficient capital to continue operating under challenging economic conditions. This annual assessment is referred to as a 澳洲幸运5开奖号码历史查询:stress test.

Types of Banks

Most banks can be categorized as retail, commercial or corporate, or investment banks. The big global banks often operate separate arms for each of these categories.꧃

Retail Banks

R💛etail banks offer thei🐈r services to the general public and usually have branch offices as well as main offices for the convenience of their customers.

They provide a range of services such as checking and savings accoun♋ts, loan and mortgage services, financing for automobiles, and short-term loans such as overdraft protection. Many also offer credit cards.

They also offer access to investments in CDs, mutual funds, and individual retirement accounts (IRAs). The larger retail banks also cater to high-net-worth individuals with specialty services such as 澳洲幸运5开奖号码历史查询:private banking and wealth management services.

Examples of retail banks inclu♏de TD Bank and Citibank.

Commercial or Corporate Banks

Commercial or corporate banks tailor their services to business clients, from small business owners to large corporate entities. Along with day-to-day business banking, these banks also offer credit services, 澳洲幸运5开奖号码历史查询:cash management, c🎀ommercial real estate serviꦉces, employer services, and trade finance,

JPMorgan Chase and Bank of America 🐬are examples of commercial banks, though both have large retail banking divisions ඣas well.

Investment Banks

Investment banks focus on providing corporate clients with complex services and financial transactions such as underwriting and assisting with 澳洲幸运5开奖号码历史查询:merger and acquisition (M&A) activity. They are 🥂primarily financial intermediaries in these transactions.

Their clienꦜts iꦐnclude large corporations, other financial institutions, pension funds, governments, and hedge funds.

Morgan Stanley and Goldman Sachs are among the 👍biggest U.S. investment banks♐.

Central Banks

Unlike the banks above, 澳洲幸运5开奖号码历史查询:central banks does not deal directly with the public. A central bank is an independen꧂t i♏nstitution authorized by a government to oversee the nation's money supply and its monetary policy.

As such, central banks are responsible for the stability of the currency and of the economic system as a whole. They also have a role in regulating the capital and 澳洲幸运5开奖号码历史查询:reserve requirements of the nation's banks.

The U.S. Federal Reserve Bank is the central bank of the U.S. The European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Ba🅠nk, and the People’s Bank of China are among its counterparts in oth🐽er nations.

Bank vs. Credit Union

澳洲幸运5开奖号码历史查询:Credit unions offer banking se🀅rvices but, unlike banks, they are not-for-profit institutions created for and managed by their members or customers. Credit unions provide routine banking services to their clients, who are generally called members.

Credit unions are created, owned, and operated by their clients, and are generally 澳洲幸运5开奖号码历史查询:tax-exempt. Members purchase shares 𝕴in the co-op, and that money is pooled together to fund the credit union's loans.

They tend to provide a limited range of services compared to banks. They also have fewer locations and aꦛutomated teller machines (ATMs).

The Bottom Line

At the very least, a bank is where you stash your cash until you use it to pay the bills or withdraw money. It can also be the place where you get a loan to buy a car or a mortgage to buy a house. If you're running a small business, it may be where you go to borrow money to expand or improve.

Before choosing a bank, you should make a comparison of the various fees and charges that come w🍸ith your accounts or any loans you might need. A bit of research and comparison will ensure you find the right fit for safeguarding your money, establishing credit, making payments, applying for loans, receiving funds, and saving money for future needs such as retirement, emergencies, and homebuying.