Banking · Module 2 of 5
What a bank actually does
What a bank does with your money, how it makes a living, and how to choose between a bank, a credit union and an online bank.
Key terms in What a bank actually does
- Bank
A bank is a financial institution and business that accepts deposits, makes loans and handles other financial transactions. It earns income largely by lending at higher rates than it pays on deposits and by charging for services. Banks differ from credit unions in being owned by investors rather than by their account holders.
Source: Consumer Financial Protection Bureau, Financial Terms Glossary
- Credit union
A credit union is a not-for-profit financial institution that accepts deposits, makes loans and offers other financial services, and that is owned and controlled by its members. Membership usually requires a shared bond, such as an employer, a neighborhood or an organization. Surplus earnings are returned to members through lower fees and better rates.
Source: National Credit Union Administration, What is a Credit Union?
- Deposit insurance
Deposit insurance is a government guarantee that protects money held in eligible accounts if the institution fails. In the United States, the Federal Deposit Insurance Corporation covers deposits at insured banks up to a set limit, and the National Credit Union Administration does the same for credit unions. Investment products such as stocks and crypto assets are not covered.
Source: Federal Deposit Insurance Corporation, Deposit Insurance
- Reserve requirement
A reserve requirement is a rule setting the minimum amount of reserves a depository institution must hold against certain deposits. Central banks have used it as a monetary policy tool. The U.S. Federal Reserve Board lowered its reserve requirement ratios to zero percent in March 2020, so no institution currently faces one.
Every term on Lever is in the money glossary.
About this module
What a bank actually does is part of Banking, one of 15 subjects in Lever. It’s a short run of 5 lessons, about 13 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
More in Banking
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1
Lending to people you know
Lending to friends and family, cosigning a loan, and what it can really cost you.
6 lessons -
3
Where the money sits
Checking, savings, fixed-term deposits and more: what each account pays, how easy it is to reach, and when switching is worth it.
8 lessons -
4
What borrowing costs
What a loan is made of, what the yearly rate means, and why paying only the minimum costs so much.
5 lessons -
5
Moving money in and out
Getting paid, using ATMs, overdrafts, and the real difference between debit and credit cards.
7 lessons
Try this module
It’s part of Banking. Lever will bring it to you when you’re ready, or you can go straight there.