The Fundamentals of Banking At its core, banking is a system where financial institutions accept deposits, provide loans, and offer various financial services. Banks play a crucial role in the economy by mobilizing savings for productive uses, facilitating payments, and managing risks. Here's a brief overview of how banking works 1. Deposits : Individuals and businesses deposit their money into bank accounts. These deposits can earn interest over time. 2. Loans : Banks lend a portion of these deposits to borrowers, charging interest on these loans. This interest is higher than the interest paid on deposits, allowing banks to profit. 3. Payment Services : Banks provide a secure and efficient means of transferring money through checks, electronic transfers, and payment cards. 4. Investment Services : Banks offer investment products such as mutual funds, savings bonds, and other financial instruments. 5. Risk Management : Through insurance and derivatives, bank