Banking is defined as the business activity of accepting and safeguarding money owned by other individuals and entities.
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marium9049
A bank is a financial institution which is involved in borrowing and lending money. Banks take customer deposits in return for paying customers an annual interest payment. The bank then uses the majority of these deposits to lend to other customers for a variety of loans. The difference between the two interest rates is effectively the profit margin for banks. Banks play an important role in the economy for offering a service for people wishing to save. Banks also play an important role in offering finance to businesses who wish to invest and expand. These loans and business investment are important for enabling economic growth.
1. Safety of deposits
Banks are seen as a secure place to deposit money. It would be impractical and risky to keep all your savings as cash under your bed. In medieval times, people would often pay early banks (e.g. Knights Templar) to keep their money and assets safe. It also saves people worrying about money. In the UK, commercial banks are guaranteed by the Bank of England as a lender of last resort. Therefore, consumers see them as safe places to deposit money.
2. Interest on deposits
Commercial banks pay interest on deposits. For current accounts, this may be very low, but for saving accounts, the interest rate can be significant. In a period of inflation, interest rates on deposits are very important for maintaining the real value of your savings. For example, if inflation is 4% then keeping cash will see the value of savings decrease in value. However, if the bank is paying an interest rate of 6%, then the real value of your savings will increase. For some customers, such as pensioners, interest payments on their bank savings can be an important source of income.
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Explanation:
Banking is defined as the business activity of accepting and safeguarding money owned by other individuals and entities.
1. Safety of deposits
Banks are seen as a secure place to deposit money. It would be impractical and risky to keep all your savings as cash under your bed. In medieval times, people would often pay early banks (e.g. Knights Templar) to keep their money and assets safe. It also saves people worrying about money. In the UK, commercial banks are guaranteed by the Bank of England as a lender of last resort. Therefore, consumers see them as safe places to deposit money.
2. Interest on deposits
Commercial banks pay interest on deposits. For current accounts, this may be very low, but for saving accounts, the interest rate can be significant. In a period of inflation, interest rates on deposits are very important for maintaining the real value of your savings. For example, if inflation is 4% then keeping cash will see the value of savings decrease in value. However, if the bank is paying an interest rate of 6%, then the real value of your savings will increase. For some customers, such as pensioners, interest payments on their bank savings can be an important source of income.