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How Do Banks Work?

The manner in which banks operate might seem like a rather basic topic, but given how complex financial markets have become in recent years, it’s helpful to revisit the fundamental simplicity of the industry.

Having money exactly when you need to it—and earning income on it when you don’t—is a problem as old as money itself. Banks exist to solve that problem, and have served as an intermediary between savers and borrowers since the Italian Renaissance, the Crusades, or even earlier, depending on which historians you consult.

More specifically, banks lend the funds deposited into savings accounts and certificates of deposit (CDs) to other customers, who repay the money with interest over time. Depositors entrust their money to banks for two reasons: 1) banks offer safe-keeping, borne from FDIC insurance; and 2) banks pay interest on deposits, allowing funds to grow over time. Banks, in turn, make money, by charging a higher rate of interest on their loans than what they pay on deposits. Banks can have other sources of revenue as well, including investments, fees on various services, and commissions on the sale of financial products such as mutual funds and insurance.

In addition to serving as a vector for borrowing and lending, banks play a central role in a number of other financial mechanisms. For example, banks process payments between buyers and sellers and they exchange foreign currencies. Banks also carry out governmental monetary policy by increasing or decreasing the amount of money they keep in reserve.

Questions & Answers

Comparing banks can be tough. But you've got the knowledgeable WalletHub community on your side. Other consumers have a wealth of knowledge to share, and we encourage everyone to do so while respecting our content guidelines. Please keep in mind that editorial and user-generated content on this page is not reviewed or otherwise endorsed by any financial institution. In addition, it is not the financial institution's responsibility to ensure all posts and questions are answered.

Upvotes

Can I open a business account online?

Alexandra Barring, Banking Moderator

Yes, most banks allow you to open a business account online. The process varies depending on the institution, but it's faster and easier than going to a branch. It typically involves completing and submitting an online application.

All digital banks will allow you to open a business account online. Some of the brick-and-mortar banks that offer this possibility include Bank of America, Chase, US Bank and Wells Fargo.

Upvotes

What is required to qualify for a checking account?

Alexandra Barring, Banking Moderator

You don't really need to qualify for a checking account. Pretty much anyone who is at least 18 years old can open a checking account. Depending on the bank, you will need one or two forms of government issued photo identification, your social security number, and a utility bill.

Upvotes

Which banks have money market accounts?

Lauren Smith, WalletHub Staff Writer

Nearly all of the largest banks have money market accounts (MMAs), a very popular and commonly used type of savings account. Most smaller banks, online banks, and credit unions also offer money market accounts to both consumers and businesses.

Top Banks with Money Market Accounts

Ally Bank
Bank of America
BMO
Capital One
Citibank
Citizen's Bank
First Citizens Bank
Goldman Sachs
PNC Bank Premiere

Upvotes

Which bank has an app that allows you to deposit money orders through it?

Kathryn B. Hauer, CERTIFIED FINANCIAL PLANNER (TM)

Hi! Good question – we all know that CHECKS can easily go through most mobile apps to most banks, but money orders are a little different. It looks like most banks allow checks AND money orders to be deposited through their individual bank mobile apps. Some banks don't have that option quite yet, but it looks like banks are adding this service more and more, so if your bank doesn't have it now, they may...

View more answers

Upvotes

What banks do personal loans?

Rick Bormin, Personal Loans Moderator

Many banks do personal loans, including Wells Fargo, Citibank, American Express, Discover and U.S. Bank, to name a few of the biggest lenders. In addition to large national lenders, there are thousands of local banks that offer personal loans, giving borrowers plenty of choices. Below, you can see some of the biggest banks that do personal loans, along with their rates.

Major Banks That Do Personal Loans

Lender

APR

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Banks & Credit Unions

Renasant Bank

Sterling Savings Bank

Zions Bank

OneWest Bank

MidFirst Bank

Bank of America

U.S. Bank

Citizens Bank

UMB Bank

Chase

Commerce Bank

Regions Bank

HSBC

IBERIABANK

CIT Bank

Capital One

Wells Fargo

First National Bank of Omaha

Simmons Bank

Northpointe Bank

First Republic Bank

Beal Bank

United Central Bank

Bessemer Trust

How Do Banks Work?

Questions & Answers

Can I open a business account online?

What is required to qualify for a checking account?

Which banks have money market accounts?

Which bank has an app that allows you to deposit money orders through it?

What banks do personal loans?

Ask the Experts

Important Disclosures