Banks as Service Providers

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Did you know that most banks are considered a business? Yes, banks are service providers like landscaping companies and laundromats. Learn what kinds of services banks can offer you in this lesson.

Banks as Businesses

Did you know that your local bank is a business just like your local laundromat? That's right. Just like any other business, banks are dependent on the business they receive from customers. Most banks are for-profit businesses while a few are run by the government, or are non-profit. We define a bank as a licensed organization that stores and lends money. Because banks can influence the economy, they are highly regulated by the government of the state or country they are located in. For example, in the United States, banks have to be licensed and insured to protect the monies of its customers. In this lesson, we will talk about the services that banks provide.

Banks don't necessarily sell you anything, but they do provide valuable services. Let's follow Sam here as he visits a bank and asks about all the services the bank can provide him. Sam has just graduated from high school and wants to start a pie making business. Let's see how the bank can help him.

Store Money

Most people use banks to store money. Instead of stuffing $20 bills under the mattress, most people find that keeping their money in the bank is far safer and prevents their bills from getting lost. Also, storing money in the bank opens up a whole new world of financial opportunities for that money as we will see. Banks provide different accounts for different purposes. There are personal accounts for individuals, business accounts for businesses, investment accounts for those that want to invest in stocks, and retirement accounts for those saving up for retirement.

As Sam is walking into his local bank he is greeted and asked what service he is looking for today. He explains that he is new and would like information on the services the bank provides. Sam is directed to a banker. Sam sits down with the banker and the first thing the banker shows Sam are the various bank accounts that he can open. Because Sam also has a business, he decides to open up a personal and a business account. This way he can keep his personal and business transactions separate.

Earn Money

In addition to storing money, bank customers can also earn money on the money that is stored at the bank. Most banks offer both checking and savings accounts. A checking account allows the customer to write checks, while a savings account pays the customer a certain percentage for leaving money in the account. For example, a savings account with a 2% annual percentage yield will pay you 2% of your account balance every year. So if you had $5,000 in the bank, then after a year, you would get paid ($5,000 * 2% = $100) $100 after a year of keeping the money in the bank. Of course, the bank's interest calculation is more complicated than the one I just showed you, but it gives you a general idea of how interest works. Also, you can earn money by trading stocks with an investment account.

What does Sam do? Sam likes the idea of earning money, so he opens up a personal checking account, a business checking account, a personal savings account, and a business savings account. This way, he can transfer monies between his checking and savings accounts for both personal and business needs. This ensures he can earn money on both personal and business funds.

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