A bank is a business. It takes in deposits and makes loans. It keeps people's money safe until they want to use it.

Putting money into a bank is called making a deposit. You can take your money out of a bank when you need it. Taking money out is called a withdrawal. An ATM is a machine. People can use it to take money out of their bank account.

A checking account is for everyday spending. It can pay for groceries or lunch. When someone pays with a debit card, the money comes out of their checking account almost right away.

A savings account is for setting money aside. Money in a jar at home does not earn extra money. Money in a bank savings account can. The bank pays savers extra money, called interest.

Here is interest in dollars. A bank pays 3 percent interest a year. It adds $3 to $100 kept in a savings account for a year.

A bank lends some of the money people put in to other people. Banks combine many people's savings into one pool. They lend that money to people who want to borrow.

Someone who borrows from a bank pays interest. Interest is the price of using someone else's money. Borrowers pay the bank interest. The bank passes a small part of what it earns to savers.

Money kept at home can be lost to a fire or a burglar. In an FDIC-insured bank, people do not have to worry about their money being lost or stolen. The FDIC is a United States government agency. It protects people's money in banks if a bank fails.

A bank is a business, so it can fail like other businesses. Bank failures are unlikely, but they do happen.

The Federal Reserve is called the Fed. It is the central bank of the United States.

Words to know

• deposit: putting money in
• withdrawal: taking money out
• interest: extra money
• borrow: use others' money

The short version

A bank is a business that takes in deposits and makes loans. It keeps people's money safe until they want to use it. Banks combine many people's savings into one pool and lend that money to people who want to borrow.

Quick facts

• Putting money into a bank is called making a deposit, and taking it out is a withdrawal.
• A bank that pays 3 percent interest a year adds $3 to $100 kept in a savings account for a year.
• Borrowers pay the bank interest, and the bank passes a small part of what it earns to savers.
• The FDIC is a United States government agency that protects people's money in banks if a bank fails.
• Bank failures are unlikely, but they do happen.