We all know what banks are and how they play a vital role in managing our finance. Today banks are very important not only for us but also for the country. They are the one that decides the country’s economy. We all know that bank lends money to us and businesses but do you know how they give us loan and how they get money in order to give us loan? It’s an easy thing. They use the money that other customers deposit in their bank account.
Whenever we deposit money in bank, the bank people keep 30% of that amount as deposit and they lend rest of the money to either the needy people or to the businesses that need money to start or improve their business. We never come to know how much a bank earn as profit but frankly speaking they earn a huge amount of profit in the same amount that we deposit in bank and in return they give us a mere 5 or 6% per annum.
Deposits are the biggest source of funds for the banks and this so whenever a new bank arrives in the city they first run behind people to open up an account in their banks. In this way they get good sum of money which they can further use in lending loans. Whenever we deposit money in bank these deposits are considered as short term deposit the reason is that the customers have the full rights to withdraw whole money from that account. Usually people maintain a relation for years with the bank and so customers have a thinking to withdraw money whenever they need it. due to this reach banks give us less interest.
How banks effect the economy of the country?
When we deposit money in bank, bank use that money in lending to someone else with higher interest rates. Now suppose people who have deposited, withdraw their whole funds from the bank then how banks will generate profit? and they have to give loans to the people who are needy. When these things happen in huge amount, the economy of country gets affected.
Banks also offer credit card to their customers. This service is provided only to those customers who have huge bank balances and who can pay a invoice within the time frame.