A man should look for what is, and not for what he thinks should be. - Albert Einstein
Banking today involves a diverse range of services and products. It assists individuals and businesses make large purchases, send kids to college and more, by using a community’s surplus funds through deposits and investments. Understanding banking and budgeting is a critical step in ensuring financial stability and success.
The oldest kinds of banking were simple loans that were issues to businesses for the purchase of goods. When the goods were sold, the lender received the money for the loan with an interest. Today, lending activities produce the bulk income of a bank. Profit comes from the spread between the interest a bank pays for deposits and other funds and the interest it charges for loans. In recent decades, banking has also focused on collecting revenue through other means, including transaction fees and service charges on activities and services like investments, insurance, and foreign exchange.
The different types of activities involving banks are private banking, business banking, corporate banking, retail banking, and investment banking. Private banking focuses on individuals and families with large assets. Business banking offers services to mid-market businesses, while corporate banking deals with large businesses. Retail banking, which includes offshore banking services, involves direct dealings with individuals and small businesses. Investment banking deals with services on capital markets, like stocks and bonds. Retail banks and investment banks combine to form financial services companies, or universal banks. Most banks are private, profit-making enterprises, but some are nonprofits owned by the government. They act as last resort lenders and oversee monetary policy.