A bank is a business that takes in deposits and makes loans. Putting money into a bank is called making a deposit. A bank keeps people's money safe until they want to use it. Banks combine many people's savings into one pool. A bank lends some of the money people put in to other people. It lends that money to people who want to borrow.

People can take their money out when they need it. Taking money out is called a withdrawal. An ATM is a machine where people can 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 a bank account for setting money aside, and the bank pays interest on it. A bank pays its savers extra money, called interest. Money kept in a jar at home does not earn extra money. Money in a bank savings account can. Suppose a bank pays 3 percent interest a year. That adds $3 to $100 kept in a savings account for a year.

Someone who borrows from a bank pays interest. Interest is the price of using someone else's money. Borrowers pay the bank interest, and the bank passes a small part of what it earns to savers. Compound interest is interest paid on the original money and on interest the account has already earned. So the interest an account earns can start to earn interest too.

The Federal Reserve, called the Fed, is the central bank of the United States. The Fed is a bank for other banks. It is also a bank for the United States government. Congress created the Federal Reserve in 1913. The Federal Reserve Act was signed on December 23, 1913.

Money kept at home can be lost to a fire or a burglar. After thousands of banks closed in the Great Depression, Congress created the FDIC in the Banking Act of 1933. The FDIC is a United States government agency. It protects people's money in banks if a bank fails. Deposit insurance is automatic. Customers do not buy it or sign up for it.

FDIC insurance covers at least $250,000 per depositor, per insured bank, for each ownership category (as of November 2026). Since the FDIC was founded in 1933, no depositor has lost a penny of FDIC-insured funds (as of November 2026). A bank is a business, so it can fail like other businesses. Bank failures are unlikely, but they do happen.

Words to know

• compound: interest on interest
• deposit: putting money in
• depositor: person who deposits
• withdrawal: money taken out