What Does a Bank Do With My Money?
When a person
deposits money in a bank, the bank pays that person for the use of their
money. The additional money paid by the bank is called interest. In order
to have enough money to pay interest to its depositors, a bank must earn
income. How does a bank do this?
A bank collects money from people or businesses that want to keep their money in a safe place. These people are known as savers. The bank then
lends this money to people or businesses that require additional money to
meet their current or future needs.
So, when you deposit money at your local bank, the money
does not remain locked away in the bank vault. Instead, the bank lends your
money to others in your local community. Whether it is to assist your parents
in the purchase of your home or to help your neighbor start his own business,
these loans benefit your entire community.