Banking Basics

Table of contents


Introduction 4

What is a bank? 6

How do people start banks? 7

How did banking begin? 8

Why are there so many different types of banks? 11

How do I choose a bank? 13

What types of accounts do banks offer? 14

Is it difficult to open a bank account? 16

What happens to money after you deposit it? 18

What happens when you apply for a loan? 20

What are checks, and how do they work? 23

What is electronic banking? 25

Credit cards, debit cards, stored valued cards: What’s the difference? 27

Do banks keep large amounts of gold and silver in their vaults? 30

Why do banks fail? 31

Do you lose money if your bank fails? 34

Do you lose money if your bank is robbed? 35

How does the Federal Reserve fit into the U.S. banking system? 36

Resources for Everyone 40.
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Introduction


Some young savers stash their cash in shoe boxes or jelly jars. Others use “piggy banks,” which

today look more like spaceships or cartoon characters.

In any case, the same problem arises. Sooner or later, the piggy bank or jelly jar fills up, and you

have to make a decision: Should I spend the money or continue to save? And if I continue to

save, should I open a bank account or just find a bigger jar?

Maybe you’ve had to face such a decision yourself. If you decide to keep your money at home, it

will just sit there and won’t earn any extra money for you. You also run the risk that a burglar,

a fire, or some other disaster will wipe out your savings in the wink of an eye.

Then again, if you open a bank account, you can’t “visit” your money as easily as you can when

it sits in your dresser drawer. You can’t just walk into a bank in the middle of the night to count

your cash. You can’t run the coins through your fingers or toss the bills in the air and let them

rain down on your head.

Opening a bank account is a big step because you are putting your money in someone else’s

hands. You’re counting on someone else to handle your money responsibly. Before you do

that, it might be a good idea to understand how banks operate.

That’s the purpose of this pamphlet. It won’t tell you everything there is to know about banks

and banking, but we hope it will be a good basic introduction
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