The banking sector of a country is made up of a
variety of institutions supervised by the country’s central bank, such as the Bank of England
in the UK, the Federal Reserve Bank (or Fed.) in
the USA.
The central bank looks after the government’s finance and monetary policy and
acts as a banker to other banks.
However, for the general public and many businesses,
banking services are provided by commercial
or retail banks, which have branches
throughout the country. These banks offer a wide range of services which
include taking deposits, making loans and managing customer’s accounts. They
normally work with individuals and small companies. Merchant banks (BrE) or investment
banks (AmE), on the other hand, do not deal with the public but work with
big companies and corporations, giving financial advice, arranging mergers and
acquisitions etc.
Commercial banks offer their customers various
accounts. A current account (BrE) or
a checking account (AmE) is an
account which allows customers to take out or withdraw money with no restrictions. Money in this account does not
usually earn a high rate of interest:
the bank does not pay much for ‘borrowing’ your money. However, many people
also have a savings account or a deposit account which pays more interest but has restrictions on
when you can withdraw your money. Banks usually send monthly statements listing recent sums of money
going out, called debits, and sums
of money coming in, called credits. Most
customers have a credit card which
can be used for buying goods and services as well as for borrowing money. In
some countries people pay bills with
cheques (BrE) or checks (AmE).
Commercial banks also offer different types of loans. A personal loan is charged at a fixed interest rate repayable over a fixed period of
time. An overdraft allows
customers to overdraw an account –
they can have a debt, up to an agreed limit, on which interest is calculated
daily. This is cheaper than a loan if, for example, you only need to overdraw
for a short period. Banks also offer mortgages
to people who want to buy a place to live. These are long term loans on which
the property acts as collateral or a
guarantee for the bank. If the borrower doesn’t repay the mortgage, the bank
can repossess the house or flat –
the bank takes it back from the buyer, and sells it.
Banks exchange
foreign currency for people going abroad, and sell traveller’s cheques
which are protected against loss or theft. They also offer advice about investments and private pension plans – saving money for when you retire from work.
Commercial banks can also move or transfer
money from one customer’s bank account to another one, at the same or another
bank, when the customer asks them to.
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