The role of central banks and commercial banks. Types of bank accounts

It is obvious that when it comes to dealing with money, the banks are the main institutions which can provide a great variety of services essential to trade and to the entire economy of any nation. There are two main types of banks:

· central banks control the banking of the whole country and work together with the government to supervise the country’s economy. The central bank of the United Kingdom is the Bank of England, in the United States of America it is the Federal Reserve System.

The main functions of central banks.

1. To provide financial services to the government and to the banking system.

2. To be responsible for monetary policy – trying to control the rate of inflation to maintain financial stability. There are basic tools purchase.

3. To supervise and to regulatesthe banking system.

4. To prints it and issues currency.

5. To clear cheques.

6. To settle debts among commercial banks.


Commercial banks perform three basic functions: a deposit function, a credit function and a current function. People deposit money in a bank account and the bank pays interest to the depositors. The bank then uses the money to grant loans charging a higher rate of interest to borrowers than they pay to depositors.
Banks also create credit – make money available for someone to borrow. The capital a bank has and the loans it has made are its assets. The customers’ deposits are liabilities because the money is owed to someone else.

People may have three basic types of bank account:

· current account is the most popular one which is used for handling day-to-day finances. It is used for everyday transactions such as paying bills, transferring money and drawing cheques. Though the current account holder doesn’t usually receive any interest on the money he pays in this type of account has some advantages. Firstly, it enables people to hold their money in a safe place. Secondly, this type of account allows people to withdraw their money at any time. Thirdly, it provides people with a cheque book so that they don’t have to carry much cash.

· deposit account is another popular account which is really designed for saving money and may be used for short-term, small savings. The money paid into this type of account earns a small amount of interest. The customer receives no cheque book and therefore he cannot pay bills so easily as with the current account. Though it is not possible to draw cheques or have an overdraft on this type of account, it has some advantages over a current account. Firstly, it is easier to open a deposit account than a current account because there is no need to have an interview with the branch manager. A client only has to fill in a form and deposit the minimum amount of money required by the bank. Secondly, a deposit account earns for the account holder. It occurs because the bank invests the money that the depositor pays in and in return the bank pays the client interest.

But the client should remember that if he wants to take his money out of the deposit account he mustn’t forget to give a bank a week’s notice. If the client wants his money immediately, he loses some interest.

· investment account may be used for larger, long-term savings. Money paid into this type of account usually earns more interest, but the customer can’t get his money immediately. He has to inform the bank in advance when he wishes to withdraw the money. The customer may have a fixed-term account. In this case the account holder may not be able to withdraw the money for a certain period agreed with the bank, for instance, 3-5 years.


Making a personal budget.

It’s very important to know how to develop a useful personal budget. It will help you to use your income as effectively as possible. Any budget includes income and expenses. There are many types of income: wages and salaries, retired, entrepreneur income, payments for rent, gifts and so on. Expenses are divided into 3 categories: fixed, flexible and optional expenses. Fixed expenses are set in advance and must be paid regularly, for example tuition, rent and other. Flexible expenses are necessary but change with circumstances, for example food, clothing and personal care. Optional expenses vary and are not always necessary, for example entertainment and gifts.

First figure out all your sources of income and list them. And remember that you should record only your take-home pay as income. You should note all deductions from your pay-cheque. Your second step should be to record how much you spend for food, entertainment, clothing, college supplies, personal care, transportation, and miscellaneous items.

Then you can make an expense chart to figure out what percentage of your income is allocated for each item in the chart. Thus you can compare your income and expenses. A consistent item of overspending means that the budget should be readjusted or followed more closely. Obviously expenses should not be higher than income.


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