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US Banking System - All You Need to Know

The American banking system is not only confusing for a foreigner but most of the local residents also have difficulties in understanding its working. This is frustrating for sure; however, it is vital to understand its working so as you may know what is happening with your money.

Types of Banks in the United States

There are numerous kinds of banks in the US that are working in almost a similar way. However, the offered services are different including policies and procedures of working.

Retail Banks

Such banks are the ones having a focus on customers and offer their consumers an account for their money deposit. The accounts are on the name of consumers either saving, current, or any other type. Such banks are also offering credit and debit cards along with different loan schemes.

Commercial Banks

The commercial bank is one hitting the nail in the head. Such banks are for deposits accepting, offering business loans, and other products for investment.

Credit Unions

This institution is a financial cooperative organization that is controlled by the members that deliver credit at competitive rates.

Savings Banks

Such banks offer an account to consumers to save their dollars and get profit at a specific rate annually.

Online Banks

Such banks are operational in online mode only and have no physical branch or location.

Mutual Banks

Such banks are working in a similar way to credit unions as these are owned by consumers or members but not by external investors.

Central Banks

The central bank is the biggest bank managing the entire government monetary system e.g. Federal reserve bank.

Working of Banks in the United States

Numerous banks exist in the US, however, the working method of almost all banks is the same. First of all, it must be understood that a bank is a business which needs to make money for itself too. The US banks are making money out of the money that consumers place in their accounts.

The money of consumers is moved to a larger pool of money which is used by other consumers to run their business, buy car or home, or make educational payments for their kids. It is to be kept in mind that there is a specific limit on withdrawing money from the bank each day, however transactions can be made online or through checks. In case if large money withdrawal is required, a consumer can go to the nearest mortar bank and request a teller for money withdrawal, however, ID and other requirements must be fulfilled.

However, the consumers can take out their money at any stage but if their accounts don’t have any restrictions like many saving accounts have. Banks are creating money for the economy of the country which was not there before through the administration of loans. However, this doesn’t mean that banks are offering infinite loans.

There are certain regulations in place for lending loans. Only the federal reserve bank is regulating the process of lending money by setting up different requirements which are indicating the amount for a specific bank to lend. The federal bank is also regulating different metrics that fit the needs of the economy of the time. It is in hands of federal reserve banks to slow or fasten the economy through reducing or increasing liquidity. Liquidity is defined as the extent of money injected into the economy.

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