Banking & Money Matters

Banks are financial institutions that receive and protect the money of their customers. They also lend money to those who need it to pay for education, to buy a house, or for other purposes. People put money in banks to keep it safe and to earn interest.


2) What is interest?

A customer who puts money in a bank account is letting the bank use his or her money. Interest is payment for this use - just like rent is payment for the use of a car or apartment. When banks allow people to use their money by granting loans, they charge for the privilege of borrowing by collecting interest. The amount of interest received or charged is based on the size of the account or the amount borrowed, as well as other factors.

A general increase in the price of goods and services is called inflation. When people have more money to spend, but the quantity of goods and services for sale remains about the same, sellers find that they can raise prices and still sell as much as they did before. The rate of inflation changes over time.

The Federal Reserve, or "the Fed," is an independent agency that regulates banks and controls the flow of money within the United States. The Fed sets short-term interest rates for banks around the country.

President Clinton has made it easier for banks to make loans to small businesses, and he has helped to ensure that banks serve every person equally. The President and the banking community worked together to create the Community Development Financial Institution Fund, which helps people in economically depressed areas across the United States to get the loans and other banking services they need.