What is a Bank? - here are the basics

What is a bank? Those of us focused on frugal living should know the answer to that question, but many of us don't. It's amazing that some people don't have a bank account. To me it suggests that some of us don't know enough about banks to see the benefit of opening an account.

The purpose of this discussion is to provide basic insight into banking. I hope to show why a bank should be an integral part of your daily life. If you're earning and spending money, and you don't have a bank account, then this page is for you.

As a person with a bank account nearly all of his life, I figured that I might be "too close to the tree to see the forest" of banking. So, I enlisted the help of Rick Flood, President and Chief Operating Officer of Tri County Bank in Cheyenne. Rick knows his stuff, and was glad to help out with such a worthwhile cause as helping people get familiar with banking.

So, let's dive in and see if we can answer the simple question: "What is a bank?"

At a general level, Rick explained that banks are: "Financial intermediaries between those that have money and those that need it." Well, that sounds simple enough, but let's get some examples to make that more clear.

Some of the most simple examples of banking transactions are people putting their money in a bank for safe keeping so the institution can pay out the money on demand. Examples of demand include:

  • you withdrawing cash from your account

  • others cashing your personal check

  • use of your debit card to pay from your account

Okay, so it should be more clear to us now that a bank is an intermediary that povides safe keeping of our money in one or more accounts, and then conducts secure transactions with our money based on directions that we provide.

When we write a check, we give the bank direction to provide a certain amount of our money to another as documented on our check.

Banks offer different types of accounts. The most common of which are "transaction accounts" that encompass various types of saving and checking accounts. The idea behind these accounts is to keep our money safe so we can conduct transactions with it. These accounts aren't for building wealth.

What is a bank? It's an institution that helps us minimize the risk of loss of our money. It's one of the main reasons we don't have to carry around cash to conduct transactions, nor do we have to put our folding money under the mattress or inside a shoebox.

Banks have a number of other services besides conducting our financial transactions from our accounts. Let's look at some of these services for a moment to see other benefits of being a bank customer. Banks typically offer:

  • cashier checks
  • ATMs
  • wire transfers
  • notary service
  • credit cards
  • debit cards
  • personal loans
  • business loans
  • certificates of deposit
  • direct deposit of payroll checks
  • investment services

Another service offered by banks is safe deposit boxes that are safeguarded as part of their vault where cash is stored. Here you can keep small items of value such as jewelry and important documents. This can be a valuable service if you don't have a safe in your home.

The basic answer to the question: "What is a bank?" is it's a place that offers a secure location for your money and small valuables, and provides secure ways to conduct financial transactions. Banks and the services they provide help facilitate our financial dealings with a focus on minimizing our risk of loss, theft or destruction of our money.

If you don't have a bank account to help keep your money safe, then I suggest you stroll in and talk with a banker. Making use of a bank should be an integral part of frugal living. We all work hard for our money, so we should take reasonable measures to protect it.

Done with What is a Bank, take me back to Managing Money

There certainly is a broad scope of topics here at Frugal Living Freedom. When you think about it, money permeates so very many activities in our lives, therefore, being frugal encompasses a wide range of interests, from being employed to taking a vacation, and just about everything in between. Enjoy the variety, pick up some new ideas, and start making frugality a part of your signature.

I'm a big proponent of being debt-free, and I mean entirely debt-free - no mortgage payment. It's not essential for financial freedom, but you'll love the feeling once you get there. If you didn't have a rent or mortgage payment, how much more could you do for yourself with your current level of income? I suspect plenty.

If you ever hope to see an abundance of wealth, you need to plug the hole in your boat. The wealthy don't necessarily make lots of money, instead, they know how to hang onto what they make, and make it work for them.