In today's society what is the importance of banking?

Answer 1

Banking fulfills the role of Leverage. If you didn't have banks you would have people having to save their entire lives to purchase a house. By having a bank, you have the leverage of loans and many peoples money in the bank to work for the benefit of all. If a person chooses to buy a house in this day and age they only need to make sure they have good credit, save around 3.5% - 25% of the capitol to purchase a house. The bank then allows that person that followed the requirements of their loan to leverage the money they put up as a down payment and have 100% of the money they need for that home. So the person used a small amount of money and the bank used a lot of money to help the person to buy their home. Then the person can pay it back over time while they live in it at the expense of an interest rate.

Banks also are important for those that do not know how to invest. It at least gives them a safe place to store their money so that it is not stolen. Or at least if the bank is robbed, the person is protected by the banks insurance and the FDIC. Some banks even give a tiny amount of interest on that money back to the person. However, it is never enough to cover the loss of depreciation that the American dollar has. So when the dollar loses value at 4% and the bank only gives 1%-2.5% interest, the people are actually losing value to the money they save over time. That is why I say, it is necessary to learn to be a good investor so that you don't get stuck in this problem.