Category: 3. Advantages of Banking

Many banks operate at the multinational level, this has helped people and businesses in a way that was not possible before the establishment of modern banks. Multinational banks aids in remittance of cash, exchanging one currency for another; aids in export by transferring documents and payments; lend money to government, institutions and other world organizations. The reach of the banks is unlimited and it has helped in making the world a global village.

Though there are many benefits of the modern banks, it comes with its fair share of flaws. Let’s discuss the disadvantages of banks to understand it better.

Banks aid rural development in more than one way. Firstly, the government makes it mandatory for the banks to lend to specialized sectors such as agriculture, rural infrastructure, etc. This leads to the development of modern infrastructure and methods in rural areas, thereby bringing in growth. Secondly, with the banks opening their branches in the backward areas, the rural population has benefits of modern bank facilities such as check-in accounts, ATM’s, locker facility, etc. Furthermore, when a new bank branch opens in a village, it needs facilities such as 24-hour electricity supply, internet connection, new staff etc. This creates employment and the villagers can also benefit from facilities of electricity and internet.

An extremely important benefit of any bank is its deep and wide reach through the branch banking system and the benefits of large scale operations. The wider the bank can reach the better services it can provide. Now a day’s banks provide services of net banking, card payments, ATM’s, etc. at even the most far-fetched and backward areas. Due to these large scale operations, the services have become extremely cheap, or sometimes even free.

Banks create money with a system called credit creation. With the help of credit creation, banks can lend a lot more money than the deposits that it holds. When banks lend this money to agriculture, industries, small businesses, and service providers, they are actually helping the economy grow exponentially. This, in turn, creates employment and spending power. Overall this one function of the bank is so powerful that the entire economy of any country relies on it.

Before modern banks were established, people would borrow money from local money lenders, landlords, merchants or other wealthy individuals. These loans were given at exorbitant interest rates that most people couldn’t afford to pay, in the process the borrower would always remain in debt. It was a vicious cycle. Modern banks started providing cheaper loans to the underprivileged section of the society, breaking the whole expensive loans system.

Before the introduction of the modernized banking system, people used to save their money in hard cash. They stored this cash in lockers, underground, with the grains, etc. There were so many instances when the money got stolen, eaten by the rats or simply rot through the years. However, the modern banking system completely eliminated the need to store hard cash. It actually helps save a huge proportion of public wealth that used to get spoiled in storage.

Instead of carrying a big amount of your money with you, having a bank account gives you the option to withdraw that amount of money from a variety of locations using a debit card.

A debit card can generally be used to make purchases or to withdraw money from an ATM. For larger sums, a cheque allows the recipient to withdraw a certain amount of money from her account.

We can give standing orders to pay some fixed expenses like telephone bill, electricity bill etc and also receive payments directly into the bank account.

Many bank accounts are set up so to make regular bill payments like payment to insurance companies utilities etc. Lenders can extract money directly from the account.

This saves the account holder’s time and cost of mailing a cheque or money order. In addition, many banks offer direct deposit in which a paycheque of an account holder is automatically deposited into his bank account.

The money kept in a bank account is safe and is well regulated. Money that is kept safely in your home or on your person can be lost in a disaster, such as a fire or stolen.

By contrast, up to a certain amount placed in a bank account is automatically insured against loss by the government. Even if the bank where you hold the account goes bankrupt or is robbed, your money is still safe.

It provides high liquidity especially when a person needs a ready pool of money for the emergency purpose. You can deposit or withdraw your money whenever you need and also send remittances through the bank.

Download E-book to manage your bank account – Banking Awareness for beginners 

Identity

It provides an identity which is recognized by various government institutions.

Transparency

The bank transactions are very transparent in nature and you can keep a track of your transactions through your Passbook.