Banks and Credit
Banks hold deposits and lend money.
About this topic
Banks accept deposits from savers and lend to borrowers, earning the difference between the interest charged and the interest paid. They provide safe storage, payment services and credit. With fractional-reserve banking, banks keep only part of deposits in reserve and lend the rest, which creates money.
Banks matter because they channel savings into loans for homes, businesses and education, helping the economy grow. Credit lets people buy now and pay later, but it must be repaid with interest. Lenders judge risk using income, credit history and collateral, and riskier borrowers pay higher rates.
Example: if people deposit 1,000 dollars and the reserve requirement is 10 percent, the bank can lend 900. The borrower spends it, the seller deposits it, and the next bank can lend 810, and so on. In theory the original deposit can support up to 10,000 dollars of money, which is the money multiplier, found as 1 divided by the reserve ratio. In practice it is smaller because people hold cash and banks keep extra reserves.
Risks: if many depositors withdraw at once, a bank run, even a healthy bank can fail, so governments provide deposit insurance and regulate banks. Misconception: your deposit is not sitting in a vault; most is lent out. Tip: remember that one person's deposit is another's loan.
Key ideas
- Interest on savings and loans
- Fractional reserve banking
- Credit scores
Quick check
Use cases: where Banks and Credit helps
- Homework: review the key idea behind Banks and Credit before you start a problem set.
- Exam revision: use the quick check to test whether you can recall Banks and Credit without notes.
- Visual learning: play with the interactive lab to see how Banks and Credit changes when you adjust its inputs.
- Teaching a friend: explain Banks and Credit in your own words, then compare your version with the key ideas.
Economics explains prices, jobs, budgets and government policy in daily life.
Frequently asked questions
What is Banks and Credit?
Banks hold deposits and lend money.
What will I learn in Banks and Credit?
Interest on savings and loans. Fractional reserve banking. Credit scores.
Is Banks and Credit part of Economics & Money?
Yes. It is one of 30 Economics & Money topics on LearnViz HighSchoolEdu, with 3 key ideas, a live animation and a quick check.
Does the Banks and Credit lab work on a phone or tablet?
Yes. The animation resizes to fit your screen and supports touch, so you can drag, tap and slide with your finger.
How should I study Banks and Credit?
Read the summary and key ideas first, play with the interactive lab to see the idea in motion, then answer the quick check. If you get a question wrong, go back to the key idea it tests.
Do I need an account, and is my progress saved?
No account is needed. Marking a topic as learned is saved in your own browser, so it stays on that device and is not sent to a server.