Meaning of Bank
A bank refers to financial institutions that are licensed to conduct financial transactions like investments deposits and provision of loans. They also provide financial services like currency exchange, safe deposit boxes and wealth management. Virtually everyone deals with banks from
time to time. Banks fall into two categories; retail or commercial and investment banks.
Commercial banks are financial institutions that accept deposits and give their customers convenience and security. Part of the initial purpose of financial banks was to safely store money for their customers. The institutions, therefore, eliminate the need to keep huge sums of money on hand; consumers can easily transact using debit cards, credit cards or cheques.
Investment banks are financial intermediaries which undertake to provide different services for some governments and businesses. Such services include equity offering, underwriting debt and serving as intermediaries between issuers of securities and members of the public who opt to invest.
Importance of bank
- Collection of savings; banks operate different types of accounts including savings thus encouraging members to save.
- Money transfer; financial institutions facilitate the transfer of money from one individual or place to another by means cheques.
- Standing orders; the institutions allow you to easily pay fixed expenses like electricity and telephone bills.
- Advance loads; banks give customers loans which they use as capital to start, run and expand businesses.
- Invest customer’s savings; by investing the money customers deposits banks create employment opportunities.
- Interests; Money deposited in banks earn interest that adds to the principal amount the customer had initially.
- Grows local economies; businesses in the local economy rely heavily on the financial institutions for many financial reasons.
- Tailored solutions; financial institutions assign companies representatives who use their expertise to find solutions for the issues the company is facing.
- Overdraft facilities; the financial institutions give overdraft facilities to trustworthy customers enabling them to meet urgent financial needs.
- Discount bill of exchange; they discount bills of exchange of customers and lend a helping hand in their financial hardships.
- Retirement account management; some financial institutions provide this service to organizations that request for the same.
- General utility functions; banks perform general utility functions like the issuance of a letter of credits and project reports.
- Finance trades; banks help traders and merchants finance external and internal trade by issuing guarantees for customers.
- Agency services; the institutions facilitate the purchase and sale of company shares and payment of dividends on stock.
- Grant advances; banks give different advances like cash credits to different like account holders.
- Periodic collections;’ the financial institutions collect salaries, dividends, pension and other periodic payments on behalf of clients.
- Issue checks; banks provide travelers’ checks for security and convenience purposes. The checks are generally accepted.
- Contribute to overall prosperity; financial institutions play a crucial role in the economic development of a country.
- Liquidity; they provide high liquidity particularly when you need ready cash for emergency purposes.
- Identity; the financial institutions give their customers identity recognized by different government institutions.
Banks play crucial roles in the local and regional economy. Business people can borrow a loan to start or expand their businesses while an employed individual can take advantage of overdrafts to meet their financial needs during emergencies. Regardless of your occupation, the financial institutions have a role to play in your life.
By: Joni Kim