What is a bank? | American News

A bank is a financial institution licensed to provide service options to customers who want to save, borrow, or accumulate more money.

Banks generally accept deposits from their customers and offer them loans. They may also offer check cashing or issuing services, credit or debit cards, and insurance options.

Banks aren’t the only place you can seek financial services; check cashing companies can help you receive funds without a checking bank account, for example. Credit unions also allow you to deposit and withdraw funds. But while banks may offer similar financial services to credit unions, banks are for-profit businesses that direct most of their financial returns to their shareholders. This means they are less likely to offer you the best possible terms for a loan or savings account.

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Think of a bank as the intermediary that manages and enables a connected chain of interdependent financial activities. When you deposit money in a bank account, the bank takes that money and uses it to make loans to other people. These borrowers then repay the loan to the bank, with interest, over a fixed term. As borrowers repay their loans, the bank pays a fraction of the interest paid to its account holders to enable it to use the deposited money for loans issued.

To further your personal and professional interests, banks offer a wide variety of financial services, each with its own advantages and disadvantages depending on your financial motivations and how they evolve. Here are some of the many services a bank can offer you:

  • Certificates of deposit, or CDs, are financial products whereby the bank pays you a fixed rate of interest to make a deposit, an amount which you cannot touch without incurring a penalty before a predetermined date.
  • Chequing accounts and savings accounts both allow you to deposit and withdraw money, although checking accounts are used for everyday purchases while savings accounts are meant to protect and slowly grow your funds.
  • Credit card are a type of revolving line of credit that allows you to make purchases without paying cash.
  • Loans are issued by financial institutions to individuals or businesses seeking to make large purchases for which they currently do not have the necessary cash. An interest rate is generally included in the repayment of the loan to encourage its granting.
  • Money market accounts are savings products that also include current account functionality, such as debit card transactions.
  • Safes are containers kept in a secure facility, such as a bank vault, where a key holder can place and remove valuables like jewelry or important documents.

What are the different types of banks?

Banks are not one-size-fits-all operations. Different types of customers will find that some banks are better financial partners than others for their goals and needs. Here are some types of banks:

  • Central banks, such as the Federal Reserve System in the United States, help manage monetary policy considerations of a country or set of countries, such as setting interest rates and managing inflation. The Federal Reserve regulates other US-based banks, although it is not the only government agency to do so.
  • Community banks have fewer assets because they are not tied to a large national bank, but they offer financial services on a smaller geographic footprint, such as a county or region.
  • Investment banks are financial institutions that help negotiate major asset transactions, such as large corporate mergers and acquisitions.
  • Online banks do not have physical locations but tend to offer better interest rates on loans or accounts than banks with physical locations. Transactions with these online-only institutions are usually done through a website or mobile app and are therefore best suited to someone who doesn’t need in-person support and is comfortable with most of their business. digital banking.

The practice of seeking and granting loans has been in place for millennia, with the earliest examples coming from ancient Mesopotamian grain exchanges and transactions. Coins were then developed in 700 BC in an area that is now western Turkey, while the Chinese invented paper money during the Tang Dynasty, which ruled between 618 and 907 AD.

The first modern bank in the United States emerged only after the Revolutionary War, when Alexander Hamilton, the first United States Treasury Secretary, persuaded lawmakers to issue a charter for a national bank. In late 1791, the first Bank of the United States opened in Philadelphia. Many branches opened in East Coast cities over the next few years.

These are the five largest U.S.-headquartered banks by consolidated assets as of December 31, 2021, according to the Federal Reserve System.

  1. JPMorgan Chase & Co. (Ticker: JPM)
  2. Bank of America Corp. (BAC)
  3. Wells Fargo & Co. (WFC)
  4. Citigroup Inc. (C)
  5. American Bancorp (USB)

Unless you plan to hide your money under your mattress, you will eventually have to deal with a financial institution that can safeguard your money or give you a loan. While a bank may not be the institution you will eventually choose for your financial needs, understanding how they operate and the services they can provide can help you decide what to look for when making your selection.


Banks are generally considered a safe place to store your money and conduct financial business. Big banks will likely have a slew of physical branches and ATMs in convenient locations, as well as plenty of digital banking offerings.

Because banks are for-profit institutions, they tend to offer their customers less attractive terms than a credit union might offer to maximize returns for their investors. If you have accounts with a large bank with many customers, personalized customer service is difficult, if not impossible.

The Federal Deposit Insurance Corporation, or FDIC, is a federal agency that guarantees up to $250,000 per depositor in accounts at FDIC-insured banks. Essentially, if an FDIC-insured bank goes bankrupt, is robbed, or is found to have insufficient funds, the FDIC lets you breathe a sigh of relief that you won’t lose all your money.

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