Four Fascinating Facts About Banks

Four Fascinating Facts About Banks

We rely on banks for so many things: they hold onto our money as it matures in savings accounts, and at the same time they lend us capital through mortgages and credit cards. Banks are such an essential part of modern financial life, and yet, somehow, their basic functions remain a mystery to almost everyone. Here are some quick, interesting facts to give you a clearer understanding of how banks work:

They Don’t Have Much Cash

Bank heist films lead us to believe that each local branch is home to a small fortune, but the fact of the matter is that most banks hold onto as little cash as they possibly can–some will even start a regular business day with less than $10,000 on hand. This is done to keep employees safe and so that the money can be put to good use outside of the bank walls. As we delve further into the digital age, the practicality of cash is quickly diminishing–today, the vast majority of the global money supply (about 92%!) does not even exist in physical form.

They Have Insurance

Though it’s not required by law, most banks in the United States have an insurance plan with The Federal Deposit Insurance Corporation (FDIC), which guarantees that all customers of a banking institution will be fully reimbursed (up to $250,000) if the bank fails. Most major credit unions have a near-identical insurance policy with the National Credit Union Administration (NCUA). If you’re not sure whether your banking institution is insured, check their website to see if they have a policy with the FDIC or NCUA.

Online Vs. Brick-and-Mortar

Most of us are accustomed to having both a checking and a savings account with a national bank that has a nearby physical branch. That might be convenient, but the truth is that online banks do a much better job at offering many essential services. Since they don’t have any physical branches, online banks tend to have smaller payrolls and don’t have to deal with the costs associated with owning property. The money they save finds its way back into customers’ pocketbooks through higher interest rates on savings accounts and fewer penalty fees.

The Federal Funds Rate

When the Federal Reserve Bank adjusts the federal funds rate, it’s not going to directly affect the interest rates associated with any of your accounts. Instead, the Federal Reserve is simply dictating the interest rate that one bank must charge another when lending capital overnight. These changes might, in turn, affect what your bank is able to offer you, though none of that will happen overnight. But watch out–soon enough, the recent hikes in the fed rate could mean a higher interest rate for your savings account.

        People devote years to studying banks, so there’s only so much we can say without diving too deep. If you’re curious to learn more, check out the Trim Bytes News Section, where we explain how banks and banking policies work in greater detail.

Looking to Learn More About Money? >> Sign Up For Trim!