What do banks do?

Banks. How much do you really know about them? It’s where the money’s at, it’s where you get your loans and people try to break into them a lot, in real life and in the movies (Money Heist stans unite)

Highly guarded, highly corporate and highly mysterious. Even the language around banking and finance seems designed to be overly extra. It’s time to spill the tea on banks. Banks do three main things


1. They look after your money

If you have money, you need a place to keep it safe. We’re not throwing shade at piggy banks or those guys that use under the mattress spots, but for larger amounts? That aint it. When you have larger amounts, the safest place is the bank. A bank can guard all your funds at no extra cost. It’s a win-win too as the bank can use this money to loan it out to someone else, but we’ll talk about this later on.


2. They lend money

If you need money, you’re more than likely going to go to the bank to ask for a loan. If you’re a start-up business, you could take out a loan for expenses: or if your business is killing it and you want to expand, you could take out a loan on buying new outlets. If you’re a family, you could be looking to buy a house. Lending money is a concept as old as banking is, and it’s also good for the economy as it boosts the purchasing power of the general population.

3. They help you pay for things

Most young people have a debit or credit card that they use religiously, and any payment you make goes through your bank, no matter how small or large it is. If you’re getting your favourite frappuccino at StarBucks and you pay using your card, the money is transferred from your bank account to the shop’s bank account. The bank acts as a middleman here to make the payment is what it says it is and it gets from your account to the seller safely.



What does a bank do with my money?


Just a heads up, there isn’t a room with piles and piles of money on the floor. Your money is put to good use.


As mentioned before, the bank keeps your money safe and lends it to others. What’s truly interesting/scary is that at any given moment, a bank actually has less money available for withdrawals than the total amount people have deposited - no cap. This might sound weird, but it makes sense. Whilst the bank is lending out money, it’s also collecting interest on the loaned funds, so they can afford to work in this way.



So how does a bank make money?


The bank is a business in itself. Your debit card, free bank statements, deposits and withdrawals, free online and personal banking all come at a cost for the bank.


Their way of making money is through your money in their bank. A bank uses the money it has and lends it out to people who need it. These loans have interest payments that are set at a percentage, and they have to be paid monthly. By using your money, they save on costs and provide a valuable service to society.


There are also fees and charges as well. For example, you might have to pay a daily fee if you’re in your overdraft (don’t go there), or you may want some premium services from the bank that come at an extra cost.



And there you have it. Banks provide whole lotta key services to people and businesses, and in that way - they actually help keep our economy rolling.