What is work of bank?

Answer 1

March 2, 2007 @ 1:30 pm - Written by Trent

First of all, a bank is a business like any other business: it strives to make as much money as possible. They make money by simply moving money around; keep that in mind as we move through the services that a bank provides.

The first service that most people become familiar with in terms of a bank is a savings account. At first glance, a savings account is a situation in which you give a bank your money for a period of time, withdraw it whenever you like, and it earns a small amount of money for the time you leave it there. What actually happens, though, is that a savings account is actually a loan, except this time you're the lender. It's no different than any other loan, except it's really flexible: you can lend as much as you want to the bank and get that loan paid back whenever you'd like. Because of this flexibility, though, the interest you make on this loan is pretty low.

A checking account, at most banks, is no different than a savings account: you're lending the bank your money, but with a checking account, they pay your interest with services (dealing with the checks you write, etc.) instead of interest.

The other major aspect that people think of when they consider a bank is loans: they lend money to people for automobiles, cars, and other things.

So how does a bank make money? For starters, they take the money you loan them and earn a pretty strong return with it, then give you a part of that return in the form of interest. So, each dollar you put into your account with the bank makes them a little bit of money.

Let's say, for example, that the bank has a savings account with a 1.5% rate of return, which is likely better than the bank in your neighborhood. They take the money from your account (and a lot of other savings accounts) and use all of that money to buy (for example) a treasury note, which is guaranteed by the federal government and returns about 5%.

Even better, let's say that someone else comes into the bank and wants to borrow some money for a car. The bank offers to lend them the money for the car at 7% return, so they take that money from the accounts at the bank and give it to the borrower. Then, the borrower pays back that money plus the interest, of which they pass on 1.5% to you, keeping 5.5% for themselves.

So, hypothetically, let's say a bank opens for business and two people open savings accounts at 1.5% with $10,000 each. Then, Judy comes in and wants to borrow $20,000 for a car loan for one year, so the bank uses the $20,000 the people have deposited. At the end of the year, Judy will pay back the $20,000 plus 7% ($1,400). Then, each of the savings account holders come in and clean out their accounts. Each one takes out $10,000 plus 1.5% ($150) for a total of $20,300. The bank thus keeps the remaining $1,100. If that happens, say, 100 times in a year (200 savings accounts, 100 car borrowers), the bank makes $110,000 a year. When you start figuring in long term things like home loans, and also when people buy things like certificates of deposit, it becomes clear that a bank can bring in a lot of money each year.

On top of that, banks today make a lot of money from fees. You get pinged when you use the wrong ATM, when you overdraft a check, and so on. Each of these activities only costs the bank a few cents to handle, but it costs you a few dollars (at least).

To summarize, a bank works by paying people small amounts to lend them money, then lending that money onto others for larger amounts. They manage that whole process, and then keep the difference between the large amount (interest on loans) and small amount (interest from a savings account).

Answer 2

Banks are a medium to save money of individuals and provide loan out of that money to people/companies in need and earning huge interests as a result.

Banks are financial institutions that accepts public deposits and render loans to individuals/companies out of those deposits. Where as the rate of interest paid to public against various deposits is comparatively low,they charge higher rate of interest while rendering loan,the difference in margin,after considering all expenses,is bank's profit. The nationalized banks are to follow government strictures and extend loans to social development sectors, which may not be remunerative, whereas private sector banks prioritize on profit garnering schemes to whom service to weaker sections of the society is secondary.

Answer 3

The two main tasks of a bank are

1. Accept customer deposits

2. Grant customer loans

Answer 4

coolect money from public at low rate & sell in the market at high rate