2. What do Banks do?

Purpose of Banks

A bank is a financial institution which is involved in borrowing and lending money. Banks take customer deposits in return for paying customers an annual interest payment. The bank then uses the majority of these deposits to lend to other customers for a variety of loans. The difference between the two interest rates is effectively the profit margin for banks. Banks play an important role in the economy for offering a service for people wishing to save. Banks also play an important role in offering finance to businesses who wish to invest and expand.  These loans and business investment are important for enabling economic growth.

Main purpose of banks

  1. Keep money safe for customers
  2. Offer customers interest on deposits, helping to protect against money losing value against inflation.
  3. Lending money to firms, customers and homebuyers.
  4. Offering financial advice and related financial services, such as insurance

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