Commercial banks, such as Bank of America, fall under the banking and finance umbrella, as do central banks, which are government bodies that regulate the sector and oversee monetary policy.
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What are Central Banks?
Central banks manage a single country or a group of nations’ money supply. They have complete power over interest rates and the flow of currency. The autonomous institutions try to keep inflation at bay and the unemployment rate as low as possible.
The Federal Reserve System, or “the Fed,” is the name given to the central bank in the United States. Congress formed it in 1913 to protect the safety and soundness of the nation’s banking and financial system. The European Union has a comparable entity, the European Central Bank, which is in charge of banking and finance in 19 nations.
What are Commercial Banks?
A commercial bank is a financial institution that provides banking services to the general public and companies, such as Bank of America or Chase. Checking and savings accounts, credit cards, and business loans are all available from commercial banks.
These financial companies generate revenue by charging interest on services such as credit cards and loans. Individuals who deposit money in a savings account, on the other hand, are basically lending money to the bank and can receive interest on their money.
How Do Banks Engage With Each Other?
While central banks regulate the industry, most consumers deal with commercial banks, which provide services such as checking accounts, savings accounts, and mortgages. Commercial banks often provide services to both consumers and companies.
Commercial banks have always been in physical locations, but in recent years, digital banking has gained in significance, providing individuals and companies with more banking and financial alternatives than ever before. Let’s take a closer look at these items and services.
What is a Checking Account?
The most frequent sort of bank account is a checking account. It enables customers to deposit and withdraw funds as needed. The majority of individuals utilize this for day-to-day costs such as grocery shopping, rent payment, and attending the movies.
Customers with checking accounts have no limitations on how frequently they may access their money through debit card purchases, withdrawals, or transfers. Customers are also affected by overdraft fees. Customers may be charged an extra fee if they spend more than they have in their account.
Useful Resource: Difference between Customer Due Diligence and Enhanced Due Diligence
What is a Savings Account?
Savings accounts serve as a rainy-day reserve for users, allowing them to store money while earning interest. A savings account, as opposed to a checking account, prepares clients for longer-term requirements rather than being accessible on a daily basis.
Federal legislation also limits the number of transfers and withdrawals from savings accounts to six per month. The limits can assist clients to keep their money secure for emergency situations, and the withdrawal limit deters users from accessing their accounts too frequently, allowing the money in the account to mature.
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Recommended Reading: Common types of check frauds
Salman is a prolific environmental writer, and has authored more than 500 articles in reputed journals, magazines and websites. He is proactively engaged in creating mass awareness on renewable energy, waste management, sustainability and conservation all over the world.
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