Putting money in the bank helps to keep it safe. Because they deal specially with money, banks have very safe ways of keeping money locked up where no one can try to steal it! People keep their money in the bank because they can trust that it will be safe.
People also put money in the bank because it can help the money to grow a little bit and turn into a larger amount by earning interest, which is like a reward the bank gives to people for keeping their money in that bank! The interest the bank pays to people for keeping their money in the bank comes from interest that other people pay to the bank in exchange for being allowed to borrow money!
Further informationHere is an example of how banks work: Sharon gives the bank $50 to keep safe for her. Then, Ray goes to the bank and wants to borrow $50. The bank lends Sharon’s $50 to Ray, but asks him to pay back $55 in exchange for the favor of borrowing that money. So when Sharon goes back to the bank to get her money, the bank gives her $52 instead of $50 to say “thank you” for letting them lend her money to Ray! This way, Sharon has profited $2 by keeping her money safely in the bank, and the bank has profited $3 by lending money to Ray!
For an afternoon, pretend like pebbles you can collect outside are like money!
Start your own bank, and offer to keep pebbles that your friends find and collect safe for them! If you have a friend who would like to borrow some pebbles, lend them to your friend, but remind him or her that they'll have you pay you back that same number of pebbles, plus five more in exchange for the favor of borrowing the pebbles!
If your friends who give you pebbles to keep safe would like to have their pebbles back, pay them interest of two pebbles as a “thank you” for letting you have their pebbles to lend out to the borrowers!
Sources & links
Banking on Our Future “How Banks Work.” Fun for Kids ”“ The Mint. Northwestern Mutual Foundation. 12 Apr. 2011 Nebel, Bernard J. Ph.D. “Chapter 4 ”“ Economics: Exchanging Goods and Services.” Nebel’s Elementary Education. Maryland: Nebel’s Press for Learning, 2001. 77-79.