Bank

Banks act as go-betweens for savers and borrowers. They gather money from many depositors and lend it to people and businesses who need it, such as homebuyers, students and companies. They earn money mainly from the difference between the interest they charge on loans and the interest they pay on deposits, as well as from fees.

For example, a bank might pay 2% interest on savings and lend money as mortgages at 5%. The 3% gap, applied to large amounts, covers the bank's costs, the risk of borrowers not repaying and its profit.

Banks also run the payment system. When you pay by card, transfer money or receive your salary, banks move the money between accounts.

Because banks lend out most of the money deposited with them, they need to manage risk carefully. They must hold enough cash and capital to repay depositors who want their money and to absorb losses from loans that go bad. For this reason, banks are heavily regulated, and in many countries deposits are protected up to a limit by government-backed insurance schemes.