How do Banks Work? - Lesson for Kids

Instructor: Jennifer Lowery

Jennifer has taught elementary levels K-3 and has master's degrees in elementary education and curriculum/instruction and educational leadership.

Banks are institutions where people can safely save and access their money. In this lesson, learn how a bank works, find out how people can add or take out money from bank accounts, and discover what banks do with the money that has been deposited.

Beyond the Piggy Bank!

Do you ever get money for doing chores, or maybe as a present for your birthday? If so, where do you put that money? Maybe you have a piggy bank where you store money that you save, and it sits there until you're ready to buy something cool like a video game.

However, many people decide to put their money into a regular bank. Let's find out why this is a good option, and what happens to your money once it is in the bank.

Some kids put their money into piggy banks, but there are many reasons why this money should go to a real bank instead.

Let's Go to the Bank

So let's say you've been working hard and have saved up $100. Now it's time to take that money to the bank. When you go, you will set up an account that is made just for you. When you give your money to the bank it is added to your account, and this is called a deposit.

People go to banks like this one to make deposits to their accounts when they have saved money.
first bank

What if you decide that later on you want to get your money so you can buy some new clothes? No problem at all. You can go back to the bank and make a withdrawal, which means that you can take some or all of your money out of your account.

After a Deposit

With your piggy bank, the money that you put in it just stays there until you are ready to spend it. But a lot happens to the money that you deposit into a bank. So let's go back to the $100 deposit that you made. Now the bank might lend that money to a company that needs it to conduct their business.

But wait! That's your money! Not to worry. The business can borrow the money, but they have to repay it over time. They also must pay a small fee to the bank. This fee is called interest, and it is one way that banks make money. In return for you keeping your money in your account where they can use it to lend, the bank will also pay you interest over time. So if you let your money stay there, it will actually grow into more money, unlike that piggy bank in your bookshelf.

A savings account can grow over time if you keep your money in a bank.

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