| It's a pretty simple idea...
You put your money in the bank and they'll pay you a little
interest - like 2%. (Interest is money added to
your account based on how much you have in there.)
Then, the bank will loan your money (and other people's)
to someone else and charge them more interest than they
are paying you - like 8%. That extra 6% is the profit
they make with their little system. Pretty smart!
So, really, you are loaning
your money to the bank so they can loan it to someone
else.
Because
of something called the "FDIC" (Federal
Deposit Insurance Company), your money is completely
safe in a bank. Well, $100,000 of it, anyway.
When the stock market crashed in 1929, a bunch
of banks went out of business -- taking people's
money with them! All the money (people's
money) the bank had invested was lost and the
bank couldn't give people back their money.
After this, people were afraid to put their money
in banks...
No deposits meant that
the banks didn't have any money to loan out...
So, people couldn't get loans for important things like
houses.
To keep this from ever happening
again, in 1933, Franklin D. Roosevelt created the FDIC.
It means that the U.S. government will give you your
money back if something happens to your bank.
In 1988, about 200 banks went belly-up... and the FDIC
had to come to the rescue.
The trick is that
the maximum amount you can
have protected by the FDIC in a single
bank is $100,000. So, if you're ever lucky enough to have
$200,000, put it in two different banks! Probably
nothing will happen, but you never know!
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