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Updated on: Thursday, September 16, 2021, 02:57 PM IST

Banks play a vital role in country's economy - Here is all you need to know about how they work

Photo credit: Pixabay

Photo credit: Pixabay

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The economy of a country vastly depends upon the banks that deal with the money. It lends money to the people as loans for establishing businesses or making property. Banks play a vital role in the financial aspects of our lives by providing us various services related to money. We prefer our savings to be deposited in banks because it is much safer and secure. Bank also offers multiple profits every month depending on our savings amount.

How do banks contribute to a country's economy?

The money in the bank keeps flowing and distributing throughout many banks. Banks offer different loans from almost 90% of the money deposited by the customers and get back more than that in the shape of interests. The money it lends to borrowers flows to other banks through the borrower's purchases. The money other banks receive from those purchases, approximately 90% of that would ultimately go for loans. It is how money keeps regulating a country's economy, benefiting many banks besides facilitating people.

As banks lend money, provide profits to their customers, giving multiple discounts on different things too. Does the question often arise how do the banks themselves run, have great money, and even earn vast profits?

That's a little interesting! The way that banks work is like a strategy that has made people's life easy. Banks work in multiple ways to facilitate people, upbringing the country's economy, and ultimately earn higher profits too.

As loan provider:

Banks work as money lenders by offering different types of loans to people to buy their dream house, start their businesses, or for other purposes. As banks provide all these appealing facilities, it earns profits by charging higher rates (decided interest) at the time of return on the lent amount to you, whether as a mortgage loan, business loan, or personal loan. Otherwise, it would dump you in immense losses according to the agreement if you could not return the money within the decided period.

Credit card facility:

Credit card facility offered by banks also includes in its work being a money lender. You can make purchases on a credit card without paying money right at the moment as the bank does it for you. As cash in hand could be risky, it is much better to pay through a credit card. But, the bank keeps summing up the amount you will have to pay later with some interest.

Financial transactions:

Banks also work as transaction intermediaries between different people or parties. Money doesn't specifically get transferred from one account to another at a moment because many transactions are still continuous between banks, and they settle between them in bulk amounts. Banks get profits from it by charging some amount for transferring money from one bank to other accounts/banks. Have a look at the pepperstone review , one of the leading names in trading.

Other sources:

Banks not only make money from interests, but they do earn from non-interest fees in return for providing services to their customers. As the bank owns the responsibility to keep your money safe, they do require fees at the expense of providing such responsive services. Like you have to pay account fees for opening a new account, monthly fees/yearly fees for the continuity and stability of your existing account, fees for checking accounts, making investments, and custodial fees for its management, etc.

“Banks bring you towards ease along with getting their treasury increase!”

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Published on: Thursday, September 16, 2021, 02:57 PM IST
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