Banking 101: What is a bank, and what does it do?

Core Insights - The article provides an overview of banks, their functions, and the various types of banking institutions available to consumers Group 1: Definition and Purpose of Banks - A bank is a licensed financial institution that accepts deposits and provides loans to customers, offering services such as checking accounts, savings accounts, mortgages, and auto loans [3][4] - Banks are either privately owned or publicly traded for-profit entities that require a charter to operate, demonstrating a reasonable chance for success and safe operation [4] Group 2: How Banks Operate - Banks accept deposits from customers and pool this money to make loans, process payments, provide credit, and pay interest on deposits [4] - Deposits in federally insured banks are protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per institution, per account category in case of bank failure [5] Group 3: Revenue Generation - Banks earn money by charging interest on loans, collecting various fees (such as account maintenance and overdraft fees), and through their own investments [5] Group 4: Types of Banks - Central banks manage national economies through monetary policy, while commercial banks accept deposits and provide loans [6] - Different types of commercial banks include national banks, regional banks (with assets between $10 billion and $100 billion), community banks (with assets under $10 billion), and online banks that operate without physical locations [8] Group 5: Comparison with Credit Unions - Unlike banks, credit unions are not-for-profit institutions that are member-owned and controlled, offering different fee structures and insurance coverage [9] - Banks generally charge higher fees and offer lower interest on savings compared to credit unions, which can provide higher savings interest rates and lower loan costs [9] Group 6: Choosing a Bank - When selecting a bank, consumers should consider the types of accounts and services offered, fees, interest rates, access to branches or online banking, and customer service reputation [10][11]