Main Activities of Banks & Financial Institutions

Banks and financial institutions are for-profit businesses that offer individuals and companies a wide variety of services. Rather than burying your cash in the backyard or stuffing it into your mattress as your preferred method of personal finance management, use a bank or financial institution's services for your next fiscal action. While larger institutions feature a plethora of products, most banks offer standard services.

Storing money for customers is the most classic of banking activities. Traditional banks, credit unions and savings institutions offer this service. Customers use bank accounts, such as checking or regular savings accounts, because most provide safe locations to store deposited money that is FDIC-insured, or protected by the Federal Deposit Insurance Corporation. This means that consumers will not lose their regular savings money (up to $250,000) if their accredited bank or financial institution fails or goes bankrupt. Some savings accounts allow customers to accrue interest on their stored money. Each type of account is different, but many checking and savings accounts are set up to allow the customer to remove money as desired.

Banks and financial institutions enable their customers to pay others. Customers are given checks, both paper and electronic, and other payment tools, such as debit cards. A customer is able to write a check or make a payment to an outside vendor, such as a grocery store, electricity company or other outside individual, with one of their designated payment tools. The financial institution sends money from the customer's account to their designated payee. The actions work in other ways as well. For example, a bank customer may receive a paycheck or direct deposit from his employer. He then deposits the check into his bank account to have access to all the funds.

Lending money allows a bank or financial institution to earn money, according to the FDIC website. This for-profit service involves the bank lending a sum of money to a customer and then charging interest as the loaned amount is repaid back to the institution. Loans are used to purchase or lease automobiles, buy homes, refinance mortgages, perform home repairs and other expensive projects. Loans may be small or large amounts, depending on the customer's needs. Banks typically require the customer to put up collateral for the loan. Each loan interest rate varies on the type of loan, the time period of the loan and the customer's credit history. The bank uses other customers' money, including money from savings accounts, in order to loan money to its other customers.