What do Banks Do? Essay

Submitted By yesenia4
Words: 1544
Pages: 7

What do Banks Do? Banks provide depositories for funds, and allow individuals, companies and organizations to move funds without the need to withdraw cash and deliver those monies to pay debts. The bank also extends its service to financing and the paying of interest on some kinds of deposits as well as to giving its customers a secure place to store valuables within their vaults. Banks are private, for-profit businesses that offer a variety of services to the public. They provide a place to safely store your money in FDIC-insured checking and savings accounts until you need to take the money out. Banks enable customers to write checks, pay bills or send money to other people. They also make loans to people and businesses. Lending money is one of the ways that a bank earns money. And where does the bank get the money to make loans? Mostly, it uses the money that customers have deposited into checking and savings accounts, while ensuring that those depositors can still get their money back when they want it. "Savings banks" or "savings and loan associations" (also known as "thrift" institutions) are also FDIC insured; their main business usually involves making home loans. Most but not all banks and thrifts in the U.S. are insured by the FDIC. One way to check whether an institution is FDIC-insured is to call the FDIC toll-free at 1-877-275-3342.In addition, you may have heard about credit unions. These are not-for-profit financial institutions that are owned and operated by their members, who are usually people who have something in common, such as the same employer or occupation. You have to become a member of the credit union to keep your money there. Deposits at credit unions are insured by another federal government agency called the National Credit Union Administration. When you apply for a loan, one of the first questions the banking representative will ask is about your purpose. Most banks have a wide variety of different loans available. Before you visit your local bank to ask for a loan, learn as much as possible about the various loan programs that banks offer consumers. Home Loans and Home Equity Loans. A standard home mortgage loan allows you to borrow to either buy or refinance a home. A home equity loan allows you to withdraw the equity you have in the home to take care of specific needs, such as making improvements or repairs to the home. One of the most common types of loans offered by banks is the car loan. The bank quotes an interest rate for the loan based on the make and model of the car as well as an evaluation of your credit profile. Your income and the amount of down payment will determine the loan amount for which you will be qualified. Another type of loan you can apply for at a bank is a basic personal loan. Personal loans qualify as unsecured debt, as there are no asset to back the loaned funds, and thus often come with higher interest rates compared to home and car loans. They also offer business loans. If you're planning to apply for a loan to start a company or continue your current commercial operations, some banks offer small business loans. If you are approved, you can use the funds to pay for common business needs, like equipment, supplies and materials. One of the most important items you must bring to apply for a business loan at a bank is a complete business proposal describing your plans in detail. Banks create money in the economy by making loans. The amount of money that banks can lend is directly affected by the reserve requirement set by the Federal Reserve. The reserve requirement is currently 3 percent to 10 percent of a bank's total deposits. This amount can be held either in cash on hand or in the bank's reserve account with the Fed. When you deposit your money in the bank, your money goes into a big pool of money along with everyone else's, and your account is credited with the amount of your deposit. When you write checks or make withdrawals, that amount is deducted…