It almost seems like a stupid question. It takes you back to grade school. Your kindergarten teacher held up pictures and told you, “This is a hospital. This is a bank. This is a creepy white van with tinted windows and a stranger offering candy. Remember children, stranger means danger.”

But first of all, that doesn’t really explain what a bank is. You might know that it has something to do with money from the giant dollar sign your teacher painted on the doors of the picture, but that’s not much of a guide. We live in a society driven heavily by money, and this vague idea that they store money bags of gold in their deepest vaults, protected by trolls, dragons, and Freddie Kruger, does not speak to their services and products. It does not give an accurate portrayal.

Second of all, banks like all things have changed from when our parents were younger. They have evolved into something that still has one foot in the past and one in the future. In addition to retail banks, credit unions and online banks have become a force of their own to reckon with.

Third of all, why is it always a white van? Do creepy people love white vans?

What is a bank?

A bank is a place that holds, invests, and lends money. All the money you put in goes into a pot in a manner of speaking. You can deposit your money, and the bank tracks how much money you have with them. In some respects, this means that your money is mixed in with everybody else’s, but they track every cent you put in. If you go and demand your money, they will give it to you.

However, understand that banks make money based on how much they have to work with. The more money they have, the more they have to lend and invest. Lending, investing and fees are banks’ main source of income. So, if Frank needs and qualifies for a loan, the banks give it to him, but they make their money by charging Frank interest on his loan. Banks also invest money deposited with them. So, if you have your money in a savings account that has interest, your bank is investing that money to get an even higher interest rate than they are giving you. They then kick some of that money back to you and keep the rest.

But how do they have the money to lend and invest?  Because a bunch of have decided to deposit their money with them! Never forget that. By keeping your money with them, you are helping them out. This is not to say that they aren’t helping you out…Tell me more, you say? Read on.