Module 5 · Banks, cards and payments
What does a bank actually do?
Where your money goes after you deposit it, how a bank earns money, and the different kinds of banks and banking apps.
This lesson is not translated into your language yet, so it is shown in English.
This lesson is still locked
This module opens after you finish the previous one — or pass its module test if you already know it.
In this lesson
- Explain what happens to money you deposit and why no bank can repay everyone at once
- Calculate what a bank earns from the gap between loan and deposit interest
- Tell apart a central bank, a commercial bank, a savings or cooperative bank and a neobank
- Spot how a free account still earns money for the bank
Nejc is 16 and has opened his first bank account. He pays in €200 from a summer job and asks the clerk: “Will my €200 sit in a drawer with my name on it?” The clerk smiles. The honest answer surprises many adults too.
Your deposit is a loan to the bank
When you pay money into a , the bank does not store your notes in a box. Legally, you have lent the bank your money. Your balance is the bank’s promise to pay it back whenever you ask. For the bank, your deposit is a : a debt it owes you.
The bank lends most of its deposits on, together with its owners’ money. It pays for mortgages, car loans and loans to businesses. It keeps only part ready as cash and as , which is money banks hold in their own accounts at the central bank.
When a bank lends, it also creates new money in the borrower’s account. A later module explains how.
How a bank earns money
A bank has three main sources of income:
- The interest gap. It charges borrowers more than it pays savers.
- Fees. Account packages, card fees, withdrawals at other banks’ machines, currency exchange, and commissions on insurance or investments.
- Card payments. Each time you pay by card, the shop’s bank pays your bank a small fee (lesson 5 explains this).
Against this come costs: staff, computer systems, branches, taxes and loans that are never repaid. Even a “free” account earns money: the bank lends or invests your balance and collects fees when you pay by card.
Why no bank can repay everyone at once
You can take your deposit out on any day, but a mortgage runs for 20 to 30 years. The bank turns short-term money into long-term loans. This is called . It is useful for the economy, but it has a weak spot.
Bank Alpha holds €200m in cash, reserves and bonds it can sell quickly. If depositors ask for €150m on one day, it can pay. If they ask for €250m, it is €50m short. It must sell assets fast, perhaps at a loss, or borrow from the central bank.
That is why banks are supervised and central banks lend to banks that are short of cash. Banks must also hold enough of their owners’ money, called capital, to absorb losses before depositors lose anything. The next lesson covers the last safety net: deposit insurance.
The banking family
| Type | What it does | Can you open an account there? |
|---|---|---|
| Central bank (ECB, Banka Slovenije) | Sets key interest rates, lends to banks, oversees payments | No: it is the bank for banks and the state |
| Commercial bank | Accounts, cards and loans for people and firms | Yes |
| Savings bank or cooperative bank | Similar services; a cooperative is owned by its members, usually one vote each | Yes |
| Investment bank | Helps companies sell shares and bonds | Not for everyday accounts |
| Neobank | A bank that exists only as an app | Yes, but check its licence |
A may hold a full banking licence. Or it may be only an e-money institution, which can hold your money for payments but may not lend it. The brand name does not tell you which, and it matters for your protection.
Check your understanding
10 questions. Get at least 8 right to unlock what comes next.