Money and Banking Explained

Key Concepts

• Money
• Banking
• Savings Accounts
• Loans
• Interest

Money

Money is a medium of exchange that allows people to buy goods and services. It serves as a unit of account, a store of value, and a standard of deferred payment. Money makes it easier to trade and conduct business, as it is more convenient than bartering goods directly.

Think of money as a universal language. Just like how people from different countries can communicate using a common language, people can trade goods and services using a common form of money.

Banking

Banking is the business of receiving, safeguarding, and lending money. Banks provide various services to individuals and businesses, such as accepting deposits, providing loans, and offering financial advice. Banking helps people manage their money more effectively and supports economic growth.

Imagine banking as a safe place for your money. Just like you keep your valuable items in a safe, you can keep your money in a bank where it is secure and can grow over time.

Savings Accounts

Savings accounts are bank accounts where individuals can deposit and save their money. These accounts typically earn interest, which is a small amount of money paid by the bank for keeping your money with them. Savings accounts help people save for future needs and goals.

Think of a savings account as a piggy bank that pays you for saving. Just like a piggy bank helps you save coins, a savings account helps you save money and earn a little extra through interest.

Loans

Loans are amounts of money borrowed from banks or other financial institutions, which must be repaid over time with interest. Loans are used for various purposes, such as buying a house, starting a business, or paying for education. Loans help people access funds they need now and pay them back later.

Imagine a loan as a friend lending you money for a special purchase. Just like a friend might lend you money and expect it back with a small gift, a bank lends you money and expects it back with a small fee called interest.

Interest

Interest is the amount of money charged by a bank or financial institution for lending money or paid to individuals for saving money. When you borrow money, you pay interest to the lender. When you save money, you earn interest from the bank. Interest helps banks make a profit and encourages people to save.

Think of interest as a reward for saving or a fee for borrowing. Just like you might get a reward for doing a good job, you earn interest for saving money. And just like you might pay a fee for borrowing a toy, you pay interest for borrowing money.