Bank

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A bank is a financial institution which stores and lends money usually on both an individual and a corporate level.

Contents

Depositing

While banks can charge fees for services, mostly people depositing money in a bank will seem to see the amount of that money slightly increase over a long time due to interest rates that the bank will pay. However, for several years now the inflation rate (see also Consumer Price Index) is greater than the interest money paid by the banks, thus one actually loses money compared to investing in tangibles or inflation hedges. For a good or service costing $1000 in 2004, the same item would cost $1,242.89[1] ten years later in 2014 due to the cumulative rate of inflation of 24.3% over those ten years.

Popular avenues for storing money are in checking or savings accounts. Generally speaking checking accounts allow the writing of checks while savings accounts will not. Savings accounts will generally pay a greater interest rate.

Banks can also offer certificates of deposit where the money is tied up for a set length of time earning a set interest rate. Generally speaking, the longer the period of time the money is tied up, the greater the interest rate it will earn. But again, it is better to invest in tangibles due to the low interest rates offered by the banks compared to the actual inflation rate. However tangible property, such as productive farmland, precious metals, firearms, and ammunition do not necessarily have the same rapid liquidity and fungibility as cash.

Some banks now also offer full service investing, where they will have a vendor come into the bank and offer access to mutual funds and other investing opportunities that the banks themselves do not directly offer.

Loans

When banks make loans they charge a rate of interest to do so. That rate is always higher than the rate they pay out for deposits. The most common form of loan is a home loan, although banks can also make personal loans, business loans or provide home equity lines based upon the equity in a home after all loans against the property are subtracted. Loan availability and loan rates usually based upon yearly household income and credit scores.

Insurance

Although banks are not part of the government (see Federal Reserve Bank), in every major country accounts with a bank are insured by the government up to a certain amount. The goal, as emphasized in the Financial Crisis of 2008, was to prevent "bank runs" in which people overnight lose confidence and demand all their deposits back.

See also

References

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