A bank is a business that takes in deposits and makes loans, and it keeps people's money safe until they want to use it. Putting money into a bank is called making a deposit, and taking it out is called a withdrawal. 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. A savings account is a bank account for setting money aside, and the bank pays interest on it, while money kept in a jar at home does not earn extra money. A checking account is for everyday spending, such as paying for groceries or lunch.

A bank pays its savers extra money, called interest. Someone who borrows from a bank also pays interest, which is the price of using someone else's money. 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. A bank may pay savers 3 percent and charge borrowers 8 percent, and the 5-point gap goes to the bank. Charging interest on loans is one of its main ways to make money, while banks pay depositors just enough interest to stay competitive with one another and attract savers.

Banks combine many people's savings into one pool and lend that money to people who want to borrow. They act as go-betweens for people who save and people who want to borrow, and without savers' deposits, banks would have little or no money to lend. Loans that seem risky carry more interest, and 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, and they fall when the reverse is true. Interest rates on loans may be fixed, staying the same, or variable, moving up or down over time.

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. A certificate of deposit is a savings deposit kept for a fixed time. The longer the term, the higher the interest, and taking money out early usually brings a penalty.

Banks sometimes charge a fee for checking accounts, because processing checks costs money. A check is a written instruction to a bank to move a set amount of money from one account to a person or group. In 2004 the Check 21 law let banks send electronic images of checks instead of moving paper checks around, which is faster and costs less. When someone pays with a debit card, the money comes out of their checking account almost right away. 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.

There are several kinds of banks: commercial banks, savings banks, savings and loan associations, cooperative banks and credit unions. Commercial banks first focused on serving businesses. The first savings banks were founded in the early 1800s to give workers with little money a secure place to save. The savings and loan associations and cooperative banks of the 1800s helped factory workers and other wage earners become homeowners, using deposits to make home loans. Credit unions began in the 1800s as a way for people shut out of ordinary lending to borrow in emergencies, using a pool of members' savings. A credit union is a financial group owned by its members.

Before federal deposit insurance, bank runs were common: at the first hint of trouble depositors lined up to withdraw money, and only the first few in line might get theirs. Even healthy banks sometimes failed in those days, when rumors made depositors panic and withdraw their money. 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. Bank failures fell from about 4,000 in 1933 to 62 in 1934, after Congress set up the FDIC.

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, and the Federal Reserve System has 12 Federal Reserve Banks, each serving its own district. The Federal Reserve Banks supply cash to banks: a bank that needs cash for customers orders it from the Reserve Bank in its district. The Fed does not print paper money. The Bureau of Engraving and Printing, part of the Treasury Department, prints it and ships it to the Federal Reserve Banks. The Fed shares the job of supervising banks with other federal and state agencies.

Deposit insurance is automatic. Customers do not buy it or sign up for it. As of November 2026, FDIC insurance covers $250,000 per depositor, per insured bank, for each ownership category, and deposits in one category at one bank are added together. It covers deposit accounts such as checking, savings, money market deposit accounts and certificates of deposit. It does not cover investments such as stocks, bonds, mutual funds or annuities, even if a bank sells them. As of November 2026, no depositor has lost a penny of FDIC-insured funds since the FDIC was founded in 1933.

Words to know

• deposit: money put in
• withdrawal: money taken out
• interest: extra money paid
• overdraft: spending beyond funds
• insured: protected