How Does a Bank Work?

Banking Basics

A common question bank account holders have is, “What do banks do with my money?” Since banks operate like a for profit business, they put the money loaned to them by their customers to work. Generally, banks make investments or loans using the money collected or borrowed from customers. For the privilege of using those dollars, the bank then pays an annual percentage yield (rate of return), or interest, to the deposit account holders. Most banks are insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC is an independent agency created by Congress and run by the government to maintain stability and public confidence in the U.S. financial system. Since its inception, no depositor has ever lost a penny of FDIC-insured funds. Coverage is automatic. The FDIC insures deposits up to $250,000 per depositor, per insured bank. Banks which are Members of the FDIC are undergo rigid operational safety and soundness audits and are examined for compliance with consumer protection laws on a frequent basis. So, if your bank is a Member of FDIC, you can rest assured that your funds are insured up to $250,000 per depositor, per insured bank. Learn all the details of FDIC Insurance here.

How do Checking Accounts Work?

A checking account holds your money, similar to a typical savings account. With a checking account, you can access the money for your everyday expenses like food, clothes, and other needs. Most checking account holders access their checking account fund through a debit card, ATM card, digital solutions or paper checks. The APY on checking accounts is lower than a savings account because this money doesn’t stay in place as long as savings. Customers are more likely to take this money out of their account sooner than a savings account in order to pay their bills or for daily life costs. If you want to learn more about different types of checking accounts, you can research several options here.

Savings Account Basics

A savings account holds the money you don’t plan to touch for a while. It can be money you intend to use to buy a high-ticket item, like a car, or simply money that you want to let sit in the bank and collect interest. Most Savings, Money Market Accounts and Certificates of Deposit produce an APY and they all vary in their terms and benefits. It’s best to consult with a banker about which type of account can help you reach your goals the best, but here is the difference in general terms.

Personal Savings Account Basics

A personal savings account is a standard account that lets you deposit your money for safe keeping. Regular deposits to a savings account pave the way to a solid financial future while putting your money to work in the meantime. Money deposited into your savings can be used by the bank to make investments and loans. Since you can withdraw the money at any time, the interest you make on your savings is relatively low. Generally speaking, the longer you keep your money deposited, the more interest you can earn.

Money Market Saving Information

Money Market Savings accounts allow you to make deposits anytime, for any amount. You typically can earn a higher APY and some money market accounts allow you to write checks right from your account. Money Market accounts have a higher minimum balance to open than a regular savings account, but keeps your money liquid, guarantees returns, is FDIC insured and is a convenient way to transfer funds to and from your checking account. Interest rates and annual percentage yields are variable and may change at any time. The Bank may require that an Account Holder make no more than six (6) transfers or withdrawals during any statement cycle from a Savings or Money Market Account.

Certificate of Deposit Basics

Certificates of Deposit (CD) accounts work a little differently. They offer interest rates based on the amount of time you leave your money in the bank. The longer the CD terms (ex- 7 months, 22 months, 35 months, etc.), the higher the interest rate you can earn. However, you must leave the money untouched until the term agreement is up. If you withdraw the money before the term expires, there is usually an early withdrawal penalty. CDs are intended for those with a saving goal in mind.

Blackhawk Bank offers reliable services and a range of account options that can fit any banking needs. To learn more about the account services we offer, contact us today for more information.

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Mathew Reynolds
SVP Retail Banking