Financial institutions. Most individuals and firms need the banking services offered by commercial banks

Most individuals and firms need the banking services offered by commercial banks. A bank is a financial institution that accepts deposits and makes commercial loans. A bank deposit is an amount of money paid into a bank account or held in a bank account especially when it is earning interest.

The main function of banks is to act as “financial middlemen”. They channel money from depositors to investors, from those wishing to save money for future use to those wanting to spend it now. Deposits can be in the form of savings accounts or checking accounts. Savings account is a bank account for saving money over a long period of time usually with higher interest. Checking account is a bank account that allows the customer to use a cheque book and provides services such as bill payments. People who deposit theirsavings in banks get deposit insurance.

Another function of banks is to make loans. This function is very important to the economy. Business loans enable firms to meet current bills and finance expansion. Consumer loans enable individuals and families to get goods and services immediately paying for them with future earnings.

One of the principal sources of income earned by banks is the interest on their loans. Checking accounts with bank loans provide a means for expanding the money supply.