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Why do we have banks?. DO NOW:. Banking Services. 7.1 How Banks Work. Goals: Explain how banks operate and benefit consumers. Describe different types of money that are used in the US economy. 7.1 How Banks Work. Key Terms: Inflation Federal Deposit Insurance Corporation (FDIC) Currency

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  1. Why do we have banks? DO NOW:

  2. Banking Services 7.1 How Banks Work

  3. Goals: • Explain how banks operate and benefit consumers. • Describe different types of money that are used in the US economy. 7.1 How Banks Work

  4. Key Terms: • Inflation • Federal Deposit Insurance Corporation (FDIC) • Currency • Check • Payee • Statement 7.1 How Banks Work

  5. Banks are private businesses. They are in business to do what? • Yes, earn a profit! (make money) • How do banks earn a profit? • Most of the income banks earn comes from the interest they charge when they lend money. How Banks Work?

  6. Where do they get the money to lend? • Mostly from the deposits made from consumers and businesses. • Here is how is works. • Banks pay depositors interest on most types of accounts. • The interest rates depositors receive are lower than the interest rates banks charge borrowers. • The difference between these rates is the banks income. How Banks Work?

  7. Suppose customer deposit $100,000 in your bank at 2% interest. ($2000) • The bank lends your $100,000 to a business and charges 6% interest.($6000) • What does the bank earn? • The 4% difference. ($6000-$2000=$4000 profit) • Banks other sources of income: • Fees for credit cards and interest • ATM fees • Financial planning services. For example.

  8. 1. Banks provide security • Banks keep money safer • Banks protect your purchasing power • The interest you earn on your money in a bank increases your purchasing power if over time there is inflation. • Inflation is a sustained increase in the average level of prices. • Most banks are FDIC insured deposits up to $250,000. How do banks benefit you?

  9. 2. Banks make borrowing easier • They bring together savers and borrowers to help give loans to reliable borrowers. How else do banks benefit consumers?

  10. Money comes in two forms 1. Currency-paper money and coins used for financial transactions. Usually used for smaller transactions. 2. Checks-an order to a bank to pay a specified sum to the person or business named on the check (payee). Usually used for larger transactions or payments. Money, money, money…MONEY

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