Banking For Beginners
As little children when we are handed over a piggy bank with coins to be collected in them from time to time, it is basically an act of teaching us the value of saving. When we are promised that with the collected money we can buy a bicycle or a doll house, we are basically taught the meaning of the idiom that “a penny saved is a penny earned.” In the grown-ups world, Banking is one of the primary sectors of the commercial world; here is a glimpse at the basic concept of banking:
What is a bank / banking system:
A bank is a financial institution, bound by fundamental and judicial regulations, where people can save their money called the bank balance which garners an interest over the time. An Interest, basically, means a percentage of money that is given to the customer for saving at the bank. There is a decided correlation about the balance, the interest and the duration. The longer the money has stayed in the account without withdrawals better the interest.
A bank may be an international bank spread across many continents, or it could be a community bank focused on a particular region, privately-owned or government-owned but they maintain a certain degree of principality in their functioning. Apart from a stated headquarter; banks have various centres or branches as they are called, where it operates with the same set of services.
Banks across the world are monitored by their concerned federal authorities. They are one of the most important components of the country’s economy so they are diligently run and vigilantly guarded.
Type of banks:
The various types of banks that can be briefly distinguished as below:
Central Bank: A Central Bank of any country is the intermediary bank between the governing authorities and the other banks. This bank regulates government’s funds, designs monetary policies, issues currency to be circulated and monitors the judicial usage of its funds. A Central Bank usually never deals with individual funds but it may offer assistance in infrastructure planning, if and when it receives similar orders from the finance ministry.
Commercial Bank: When an average citizen refers to banking for saving money, he is referring to a commercial bank. This bank performs the fundamental function of accepting deposits and facilitating transactions for withdrawals or loans.
Private Bank: A Private Bank typically caters to what is generally termed as the upper class of the society. These bank accounts can be opened only at a very high minimum balance; they might also offer a good interest rate.
Community Bank: These are local banks, specific to a certain region, or amongst certain communities, these banks offer the same set of services as a commercial bank. They might offer lower minimum balance facility or offer various loan options that are lenient than a commercial bank.
Investment Bank: These banks offer investment options in the form of mutual funds, stock and bonds, or shares.
How Does It Function:
A bank is a financial intermediary between the respective government’s financial wing such as the Central Bank and the people. A bank circulates government-issued currency, in the form of bank notes and coins and accepts deposits from people.
Besides saving an individual’s money and offering it back with an interest, a bank is involved in many monetary functions. A bank can circulate Central Bank issued bank notes, offer loans and provide multiple investment options to its customers.
Type Of Bank Services:
Savings Account: This is the most primary kind of account that can be created for savings. Through Savings Account, an individual deposits a particular amount to the bank and gains a periodic interest on the same. An interest is the percentage of money of the bank balance, which the bank gives to the customer.
Current Account (or Transactional Account): A Current Account can be used for the purpose of frequent monetary transactions. It does not offer high interest rate and is not an option for saving money. However, the process of transaction is less tedious and is useful for individuals who are frequently involved monetary transaction.
A current account is known by many names such as a checking account, demand account, or demand deposit account.
Loans: Loan is usually a lump sum amount solicited to an individual or business. It is offered by the bank over the assurance that the person to whom the loan has been issued can pay it back in series of periodic instalments within a fixed period of time. There is usually a percentage of interest that the individual pays to the bank for this service.
Non-Cash Transactions:
A bank also provides non-cash transactions such as through issuing cheques or Demand Drafts.
Cheques are issued by banks after a customer has a certain amount balance in his account. These are basically paper representations denoting the value to be issued to whoever bears the cheque or in whose name the cheque is issued.
Demand Drafts can be issued to any person without the requirement of having a bank account. These are again paper bills denoting a sum to be paid to whoever’s name is mentioned on the Demand Draft. This service is offered for a particular percentage as fee.
Internet or Mobile Banking: Internet Banking is becoming a popular option. Majority of commercial banks offer their services such as depositing money, or account to account transfer, on the Internet. Mobile Money Transfer is also increasingly being offered by banks i.e. offering banking facility over the mobile.
Saving Options:
Besides a regular savings account, the bank will offer various schemes with better interest rates. These offers may require more prompt deposits but will offer better interest rates.
Fixed Deposit: Fixed Deposits, sometimes known as Certificate Of Deposit, can be said as an amount that you promise to keep for a particular period of time without the option of transaction before the due date. It is a popular form of saving since it offers a decent amount of interest.
Recurring Deposit: This account requires you to deposit that remains locked in the account, (it cannot be withdrawn in sum or parts). After completion of the due date, the depositor receives almost double the amount with interest.
Banks have expanded their services with changing times and continue to adopt modern economic trends and technology. Even in the future banking as a service will remain in essence although may change in form.
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