Banking

Students need to learn

• What is Bank?
• Importance of Bank
• Types of Banks
• Functions of Central Bank
• Functions of Commercial Bank
Accepting Deposits – Savings, Fixed Deposit and Current Account
Lending Money – Bank overdraft and Bank Loan
Means of Payment – Cheques, Bank Draft, Standing order, Direct debit, Credit
Transfer, Bank Giro, Online Payment
Other facilities – Credit card, ATM, Remittance and Safety deposit box.
 What is banking ?

• The bank is a place which

helps you deal with your
money
• They offer their customers a
wide range of financial
services
 Importance of banking

• Banking is extremely important to

trade
• It helps buyers and sellers to make
payment and collect money from
each other quickly, efficiently and
safely
• It provides a safe place for traders to
keep their money
• Helps to lend money to business
when needed so that trade can
continue smoothly
 Types of Banks

(1) Central Bank -There is only one Central Bank in a country.

(2) Commercial Banks- There are many commercial banks in a country.

 What is a Commercial Bank?

A commercial bank is a financial institution that

grants loans, accepts deposits, and offers basic
financial products such as savings accounts and
certificates of deposit to individuals and
businesses. It makes money primarily by
providing different types of loans to customers
and charging interest.
Local Commercial Banks
 Main Functions of a commercial bank
The main services of a commercial bank
include:
Accepted deposit from customers
Providing loans to costumers
Issuing bank drafts or traveler’s cheques
Providing safe custody for valuables and
documents
Making regular payments for customers
Providing automatic teller machines and
night safes for the convenience of
customers
Providing Internet banking services for
customers
 Main Functions or Services provided by the
Commercial Banks
• 1. Accepting Deposits
• 2. Lending Money
• 3. Means of Payment
• 4. Other services

1. To understand the function of accepting deposits, we

need to know various types of bank accounts.
 Types of bank accounts

Three types of bank account a

customer can open in a bank
are:
 The savings account
 The fixed deposit account
 The current account
 The saving account

Allows the depositor to safe-

keep the money in the bank.
The money in a saving account
earns a small interest.
A passport is given to the
person who opens the saving
account. Money is deposited or
withdrawn.

To withdraw money from the bank

from the savings account, a
depositor must first fill up another
form called a withdrawal form
 Advantages and Disadvantages of
the saving account
Advantages Disadvantages

1. Money is kept from theft, 1. The bank pays a lower rate

fire, robbery and floods of interest on a savings
account as compared to a
deposit account.
2.   Money deposited earns 2.    The
depositor cannot issue
interest  cheques  
3.The depositor is allowed to 3.   Overdraft facilities is not
withdraw the money whenever available to a savings account
he requires it. holder.
 The fixed deposit account
  The fixed deposit account works almost like a
saving account
 Money deposited in this account must not be
withdrawn for certain period 
 The depositor is entitled to earn interest which
is usually higher than the savings account
 The longer the money is kept in the account, the
higher the rate of interest offered 
 Account depositor is given a certificate of
acknowledgement by the bank
 The depositor must go to the bank personally to
withdraw his money on expiry of the period
Advance notice must be given to the bank if the
agreed upon.
deposit is to be withdrawn before the end of
agreed period. If not, the depositor may lose all
the interest.
 Advantages and disadvantages of
the fixed account

Advantages Disadvantages

1. The depositor with a fixed deposit 1. The depositor is not allowed to

account can earn higher interest when withdraw money before the end of the
compared to the depositor with the agreed period. No interest will be paid
savings account. otherwise.

2. The longer the agreed deposit period, 2. The person must go personally to
the higher the interest earned. withdraw his money upon expiry as the
certificate is not transferable

3. No recommendation is required to
open this account
 The current account
• Is an account which offers various
payment methods for customers to make
payment
• Most businessmen open current accounts
with banks so that they can keep their
money safely 
• Money deposited in this account do not
earn any interest
• At the beginning of every month, the bank
sends a copy of his/her account The drawer of a cheque, that is, the person who issues
transaction and balance for the previous the cheque, pays a stamp duty of ten cents per used, as
month revenue for the government.
A current account holder can deposit any cheque from
• The depositor can withdraw money on his customers or debtors into his account for collection by
demand and without notice the bank on his behalf.
 Opening a current account
Below is what happens when an individual wants to
open a current account:
1. Select the bank where an individual wants to
open a current account
2. Meet the bank manager
3. The manager will check the individual’s
references
4. When the above is done and is in order, the
individual will be asked to go back to deposit
money
5. A cheque book, paying- in book and the first
statement will then be issued
6. Later, ATM card and a cheque book will also be
issued 
 Advantages and disadvantages of
current account

Advantages disadvantages

1. Money deposited in current account is safe 1. Money kept in the current account does
not earn any interest

2.   Payments can be made through cheques  2.    The bank charges a fee for opening this
account 

3.    There is no need to keep or carry 3.     A recommendation is needed for those
about large sums of cash to make payments  who wish to open an account 
 2. Lending of money to business

A bank lends money to

businesses in the form of:
o Bank overdraft
o Bank loan
 Bank overdraft

• A bank overdraft is a way of lending money to the customer by

allowing him to  draw a cheque up to an agreed limit over and
above the balances in his current account. It is granted for a
fixed period of time.
 Bank loan

A bank loan is a fixed sum

of money which is lent to
the customer on
condition that the loan is
repaid with a fixed
amount of money. The
customer also must pay
interest on the loan.  
Differences between a bank overdraft and bank loan
Bank Overdraft
1. It is normally taken for a short period
2. Rate of interest is higher because amount used
is for a short period
3. Interest is charged daily on outstanding
balance, that is, on the actual amount overdrawn
for the length of time it is used
4. Borrower must be holder of a current account
5.    Security must be provided for large amounts of
overdraft.
Bank Loan
1.    It is normally taken for a long period
2. Rate of interest is fairly low as the amount used
is to be paid over a long period of time
3. Interest per annum is charged on the entire
amount of loan granted and for the length of
period it is used
4. Borrower need not to be a customer as long as
security is provided
5. Security in varies form may have to be
provided
 Other facilities provided by the bank
• Issuing of credit card
• Automatic teller machine
• Remittance
• Safe deposit box
• Night safe facilities
• Online banking
• Currency exchange
• Travelers cheques
• Investment banking
• Other financial services
 Credit card
What is a credit card?
A credit card allows holders of the card
to make purchases on credit. The user
will usually be billed at the end of every
month. Interest will be charged on the
bill if the user does not pay up within
the payment's time frame.
Advantages of credit cards
Pay on credit that is, no need to pay
with your own money immediately
Convenient, especially for travelers,
as there is no need to carry large
amounts of cash to make payment
Some types of credit cards are widely
accepted internationally
It is a secure form of payment to the
retailer as it reduces the amount of
cash it the amount of cash in the
retail shop and discourages theft
 Disadvantages of credit cards to the retailer
and to the card holder

Disadvantages of credit card to the Disadvantages of credit card to the 

retailer  card holder 
1. The retailer has to pay a commission for 1. The card holder might overspend 
every transaction

2.    The retailer will only get paid when the 2. There is credit limit on the card 
transaction is authorized 

3.     The retailer has to check and verify the 3.  High interest will be charged on the
authenticity of the card  outstanding balance if the card holder does not
pay the issuer (bank) on time 
 Automated teller machine
The automated teller machine
(ATM) is a machine that allows a
person financial transactions
anytime, without the need of a
bank teller.
The transaction that can be
performed using the machine
include withdrawals, transfer of
funds, request for statement of
account
 Remittance

Remittance is the sending of

money over long distances
from one party’s bank account
to another party’s bank
account .
 Safe deposit box

Many commercial banks provide

special vaults lined with smaller
vaults called safe deposit boxes
for customers to keep their
important documents and
valuables.