A bank is a financial institution that holds money from customers and lends it out, charging a fee known as interest. It also provides other financial services such as checking and savings accounts, credit cards, and insurance. There are more than 4,200 FDIC-insured commercial banks in the United States, many of which operate both brick and mortar branches and online services. Customers choose a bank for its interest rates, fees, and convenience.
The reason to save in a bank is that it is much safer than keeping cash at home or in your car because it is insured against theft and natural disasters, such as fires and floods. A bank’s most important function is to protect your money from a loss, while making it available when you need it.
Banks are privately-owned institutions that accept deposits from the public and make loans to individuals and businesses. The deposits are secured by a promise to pay back the money, plus interest, at an agreed-upon future time. The loans are backed by a promise to repay the loan in full plus interest, but a bank may also invest in marketable debt securities and other assets.
A key aspect of a bank’s profitability is the spread between its cost of funds (deposits and borrowing) and the interest it charges on loans. A bank may return some or all of its profits to stockholders as dividends, or reinvest them in the business, in order to maintain capital.
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