Commercial Banks
Written by Anuar Burkitbayev
Commercial banks are kind of your guardian angels when it comes to anything money-related. They store your money, provide financial advice, ease the process of transactions, and so much more.
Commercial banks are not state-owned and, therefore, are part of the private sector, which means that they have to generate profit in order to stay in business. They do so through the use of interest rates. These are the amount a lender charges for the use of their assets, typically seen as percentages of the overall amount of assets. For banks, these “assets” are money. In simpler words, banks lend money to people and charge a higher amount later when the money is returned. There are different types of loans that a bank can issue. Overdrafts are small short-term loans issued by a bank for personal use. They are usually paid off within a couple of months, and some banks may not charge interest for them. Mortgages are larger long-term loans intended for buying houses, and they are paid off periodically within 25-35 years on average. They charge higher interest rates as with a bigger sum of money; there is a bigger risk that people will not be able to pay it off.
But how do banks get the money in the first place? Don’t forget, banks also store your money. A bank would take the money that people deposit for safekeeping, and lend it to others to make a profit through interest rates. So you can view banks as a place for borrowing and lending money. They also offer you the option of opening up a savings account on top of your current bank account. Savings accounts are different from current bank accounts because they allow you to deposit a sum of money into a bank, which will earn interest over time. There is just one catch; you can’t touch that money until the deposit reaches its contracted “expiry date.” If you do, then you risk losing your interest, and you also risk getting on the bad side of banks, which could bring various implications for you. All of these details, such as the amount deposited, the length of time that the deposit is active for, and the interest rates will be disclosed before a deposit is made.
Banks also serve other functions other than lending, borrowing, and saving money. They can also store other valuables such as jewelry and items of monetary or sentimental value for you in safeboxes, for a fee of course. They could provide services such as online banking to make transferring funds and paying for services and goods easier. They also have consultants that can help you make financial decisions such as investing in the stock market (they could also trade stock for you, for a fee).
