Financial Literacy: What is a Bank?
03/19/2025
Financial Literacy: What is a Bank?
While it may seem basic to those who are farther along in their financial journeys, those who are just starting may wonder just what a bank is and why it is essential to their financial success. Banks offer security, loans, and much more to help get you where you want to go!
First, let’s go over what a bank is. A bank is simply a business that “accepts deposits and makes loans” (FDIC). They may also offer additional services like credit cards, business services, et cetera. A deposit is when you put your money into the bank. Usually, this money will either go into a checking account or a savings account. Checking accounts are normally used for everyday expenses like paying bills or buying groceries. Savings accounts are meant to help you get to future financial goals. Perhaps buying a house or a new car! The key difference is that savings accounts often earn interest on whatever deposits you make.
So, why deposit your money at a bank? Banks offer more security than holding onto the money yourself. This security comes in several forms. One is that only you and whoever you have allowed on your account will be able to access money deposited at a bank. Furthermore, your money at the bank is protected from theft or natural disaster, unlike if you kept it in your home.
Another reason banks offer security is that many (but not all!) are FDIC insured. FDIC stands for Federal Deposit Insurance Corporation, and it was established by the United States government in 1933. Simply, this means that deposits you make to an FDIC insured bank are covered from loss if a bank fails. Since its establishment, “no depositor has lost a penny of FDIC-insured funds” (FDIC). There are some limitations to how much money and what types of accounts are covered by FDIC insurance. You can find more information about that here: Understanding Deposit Insurance | FDIC.gov.
But banks offer much more than just a place to hold your money and security from theft or disaster! Many people will need to take out loans somewhere on their financial journey, and most banks have fair lending practices mandated by the government to protect consumers from abusive practices other lending institutions may employ. While loans seem scary, they can help you reach your dreams of business or home ownership.
And community banks such as The Savings Bank have a vested interest in community engagement. Oftentimes your community bankers are neighbors and friends who want to see you succeed. This means you will often see your community banker at local events, supporting local schools, and overall, just being present in the community!
It may seem obvious to some what a bank is. However, why they are important to you as a consumer is not always evident. As your community bank, The Savings Bank is committed to providing excellent services, security, and community engagement.
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