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Commercial banks
A bank is a business. A bank doesn’t have a product. It sells many different kinds of services, all involving money in one way to another. And a bank makes a profit, too, on the services it provides.
A commercial bank is a bank that provides a wide range of banking services. As a matter of fact, it is often called a full-service bank. As its name suggests, a commercial bank is a business, and in many ways starting a bank is like starting a corporation. People decide that a bank is needed in a particular area and then apply for a charter. The charter can be granted by either the state or the federal government. If the charter comes from the federal govern­ment, the bank is a national bank. It must have the word national in its name. Banks whose charters come from state governments, how­ever, need not contain the word state in their names.
The most obvious services such a bank provides are savings and checking accounts. One of the primary services of a bank is the acceptance of deposit, or sums of money placed in accounts. The bank then is the keeper or guardian of the people's money.
There are two kinds of deposits. One is the kind you put into a checking account. A checking account deposit is called a demand deposit because you can get the money in your account right away, on demand. In fact, it is almost like having currency. But instead of your carrying all of it around, a financial institution keeps your money and pays it out as directed. You deposit money in the account and then write checks, or demands, against the deposited money. Later the bank subtracts the amounts written on the checks from your account when the checks are presented to the bank for payment.
A deposit that is left with a bank for a fairly long time is called a time deposit. This is the second major kind of deposit, and it is typical of a savings account. Still another reason why it is called a time deposit is that it may not be given right away or on demand. When you take money out of an account, you are making withdrawal. You may not be able to withdraw money immediately on a time deposit.
A savings account earns money, called interest. Interest is the price banks pay for the use of the depositor's money. Another major service of banks is the transferring of checking account money from one party to another. Many transfers of checking account money from one account to another are being done electronically today.
A third major service of banks is to make loans, which are a primary source of income for them. The borrowers who receive the loans must pay an interest charge, which is like a rental fee, for the money. The interest earned on loans goes to pay bank costs and expense - and to earn a profit. But there are other services. Some banks provide financial advice to their customers. Banks also provide locked vault boxes for customers to store valuables.
Sometimes people want a special program for investing money or handling their property. A bank's trust department provides the services of advising on and managing such programs.
There are a variety of other services commercial banks provide. They sell government bonds, loans of money to the government on which interest is paid to the owner. In addition, banks sell traveler's checks, which are special checks, used instead of money. They also issue credit cards, such as VISA and MasterCard, and provide links to brokerage firms for the buying and selling of stocks and bonds.