A bank is a business that takes in deposits and makes loans. It keeps people's money safe until they want to use it. A bank does not keep each deposit in its own box. A deposited bill is mixed with other cash, the balance is recorded by computer, and much of the money is lent out.

Banks act as go-betweens for people who save and people who want to borrow. Without savers' deposits, banks would have little or no money to lend. Banks combine many people's savings into one pool and lend that money to people who want to borrow.

A bank may pay savers 3 percent and charge borrowers 8 percent. The 5-point gap goes to the bank. Charging interest on loans is one of its main ways to make money. Banks pay depositors just enough interest to stay competitive with one another and attract savers.

The money in a bank belongs to its depositors, not to the bank's owners. So bankers have a special duty not to take big risks with loans. Loans that seem risky carry more interest. Lenders also check whether borrowers can repay before they lend. Interest rates on loans rise when many people want to borrow and banks have little money to lend. They fall when the reverse is true.

A savings account is a bank account for setting money aside, and the bank pays interest on it. Money kept in a jar at home does not earn extra money. Compound interest is interest paid on the original money and on interest the account has already earned. A bank that pays 3 percent interest a year adds $3 to $100 kept in a savings account for a year.

A checking account is for everyday spending. A check is a written instruction to a bank to move a set amount of money from one account to a person or group. Banks sometimes charge a fee for checking accounts, because processing checks costs money. When someone pays with a debit card, the money comes out of their checking account almost right away. ATMs of different banks are often linked in networks. People can use them in another part of town, another state, or another country.

A credit union is a financial group owned by its members, who pool their savings to make loans to one another. Banks and credit unions charge fees for some services. One is overdraft, where a purchase or ATM withdrawal goes through even though the account lacks the money to cover it.

A credit card is a loan. The buyer gets something now and agrees to pay for it later. Banks earn income from finance charges, annual fees and fees charged to merchants.

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 that protects people's money in banks if a bank fails. FDIC insurance covers at least $250,000 per depositor, per insured bank, for each ownership category (as of November 2026). Deposit insurance is automatic. Customers do not buy it or sign up for it.

Since the FDIC was founded in 1933, no depositor has lost a penny of FDIC-insured funds (as of November 2026). Nearly all banks also carry private insurance against robbery. It is not the same as federal deposit insurance.

The Federal Reserve, called the Fed, is the central bank of the United States. It is a bank for other banks and a bank for the United States government. Congress created it in 1913. The Federal Reserve System has 12 Federal Reserve Banks, each serving its own district. A bank that needs cash for customers orders it from the Reserve Bank in its district.

Words to know

• Lenders: those who lend
• overdraft: spending past balance
• compound: interest on interest
• district: area served