THE BANKING SYSTEM

A Bank is an institution with twofold function. First, it keeps people’s money safe and readily available. In this way it functions as a savings bank. Secondly, it lends money to people who need it. It is also, therefore, money-lender.

Anyone can go to any bank and deposit money, that is, ask the bank to look after it. He becomes a customer of the bank. When he deposits money, we say he opens a bank account. There are two types of bank account. The first is a current account.When a customer deposits money in the safe-keeping of the bank, he can at any time claim the repayment of the money, in prt or in whole, by means of a written order to the bank signed by himself. Such an order is called a cheque.

The second kind of account is the deposit account. When the bank receves money on deposit, the customer can demand its return at the end of an ageed term of notice of withdrawal a month, three months, six months or a year. The bank pays interest on money in deposit accounts.
Just as they receive deposits from their customers, so the banks lend money to their customers. A person who wants to borrow money has to give the bank something as security, for instance, a certificate showing ownership of property. When a customer has a bank loan, the bank charges him interest on the money he has borrowed. The bank does not always give the borrower actual money. It may credit his account with the amount borrowed, exactly as if he had deposited that amount at the bank.

The banks’ customers are given cheque-books, and can draw cheques up to the amount of money they have in their accounts, whether they have deposited or borrowed the money. They can then pay for things by cheque.

There are certain advantages in paying by cheque : first, one is saved the trouble of handing over cash; secondly, the person to whom one has given the cheque does not need to draw the actual money. He can credit the cheque to his own bank account.
Cheques make payment safe and economize on the use of money.

If a bank will not honour a cheque, i.e. refuses to pay the amount stated on the cheque because the drawer has no money left in his account and the bank will not allow him an overdraft, the cheque is returned with the initials R.D. which means “refer to drawer”