Banking Fundamentals

What to do with the money earned? How to invest it? Why should I invest my money?

These are the questions that will come up in our mind when we start to earn money. We can spend the money that we earn or we can save it. But for saving it, do we need to keep it in a secure box? "Secure" means, to what extent? So goes the question. If we keep the money in a box, what happens if any thing happens to the box, like box catching fire or attacked by rats or stolen by thieves? So to avoid these situations we need to invest our money in some financial organisations like Banks, Mutual funds.

The advantage behind investing our money is that, it will multiply. We will acquire interest for the money invested. Sounds good right? Yes. But how are the banks managing to give interest or extra money for our money? Do they have any tree that will yield money?

The banks will circulate the money invested by depositors to other people, called as borrowers who need money in the form of loan. For this loan, they will charge interest. That is, if they give Rs.100 as loan to the borrower, they will collect Rs.110 from them. This means that the bank has charged 10% interest. So for the investor, they will give 7% interest, i.e 7 rupees for every 100 rupees they deposit. The remaining 3% is the profit they earn. These will amount to huge figures when transaction happens at levels of thousands or lakhs or crores.

The banks are controlled by government agency. So they cant escape away with our money. It is the safest place to keep our money.

Also we can take our money any time we need, from the bank.

So, all those who have started to earn, dont keep your money idle. Deposit them in bank or do some investment in shares or mutual funds or bonds. This will strengthen our economy.