Money Basics
Banking Options
How do banks operate, and how is your money protected?
Banks profit from the difference in the interest rates paid on deposits and charged on loans. In other words, the bank uses the money you deposit to loan out. It charges a higher interest rate on loans it pays out to you in interest on your account. You'll learn more about interest rates later in this lesson.
Banks also make money by charging service fees and earn income from securities and investments.
Banks provide a safe place to put your money. Even in the case of a robbery, it's the bank's loss—not yours. This is because banks carry private banking insurance to protect deposits in the case of burglary, robbery, or vandalism.
Also, in the United States, the Federal Deposit Insurance Corporation (FDIC) insures most bank or savings institution deposits. The FDIC is an independent U.S. agency that protects the nation's money supply in case of financial institution failure.
The FDIC typically insures savings deposits, checking deposits, certificates of deposit (CDs), and cashiers' checks. However, securities, mutual funds, and similar investments are not insured.
FDIC-insured institutions must display an official sign at each teller window or teller station. Depositors are typically protected for up to $100,000.
