Category All About Money

A bank run occurs when a large number of customers withdraw money from their accounts simultaneously, fearing that the bank may collapse. This creates a big problem for the institution, because mostly it keeps only a small fraction of its deposits as cash on hand.

Economists note that as a bank run progresses, it generates a momentum. More and more customers withdraw cash. Such situations can arise even from small rumours about bank collapse. In the worst case, the bank’s reserves will turn insufficient to cover the mass withdrawal. The bank is then destabilized and faces bankruptcy.

The Great Depression contained several banking crises, consisting of runs on multiple banks from 1929 to 1933.

Whenever a bank runs, people in other banks too start withdrawing money. On a large scale, this can affect the country. So, governments all over the world have taken measures to avoid this danger. 

       Recession is not something we hear about in usual conversations. But whenever it comes up, we know that the situation may not look good.

       In simple terms, recession means a slow down or temporary collapse of business activity. It affects not just individual business ventures, but countries too, very badly. At the end, their economies fall. There are many things that come along with it- unemployment, decline in productivity, change in social lives of people etc.

       Recession at its initial level takes place when supply of something happens to be more than its demand. Let us put it more simply. When an economy expands, businesses too improve. They hire more workers; build more factories, set up costlier machines. But what if the demand for their product is very less? The business ends up in a big loss. Slowly, they close the factory.

           This is what contributes to a bigger danger named recession in a country. Trade markets, agriculture, and all sectors that help a country to get affected with recession. However, the common man is the biggest victim of it all. In just a matter of days, he might lose his job. This affects his family. Recession at its worst leads to economic depression, which is a dead end to the growth of a country. 

         An automated teller machine, or ATM, is considered to be one of the biggest inventions of the past century.

         While out on shopping with your family, you might have seen your parents entering small booths called ATM counters and withdrawing money easily. It is exactly for this, for making things easier that they are considered to be a great invention. ATMs help users acquire cash anytime anywhere.

         They are machines for electronic telecommunication that helps, say customers of a particular bank to withdraw money without having to go to that bank. Now you know the ATMs are set up by the respective banks.

          When you open an account with them, the banks give you an ATM card. This plastic card has a magnetic stripe and a chip containing a unique card number and security information of your bank account. At first, you insert this card in the ATM machine, and type your pin number, which is a kind of password to enter the account.

          The machine reads the details on your card, and connects to your account. It then delivers the money you ask for. ATMs also help in checking the balance amount in your account.

           These days there are Cash Deposit Machines or CDMs for some banks, which help customer deposit money without going to a bank. What a leap of progress! 

Mobile banking is one of the facilities which a bank or a financial institution provides to its customers. With this, one is able to make money transactions through a mobile device like the mobile phone or tablet. A step ahead of the ATMs, this type of banking makes it even easier, as the customer can use the service even sitting at home. Usually, it is active on a 24-hour basis.

Mobile banking uses certain softwares that are also called ‘apps’, provided by a financial institution for the purpose. Transactions that involve cash are however, not handled in mobile banking. That is, if one has to withdraw or deposit money, he has to go to an ATM, or to the bank itself. Mobile banking helps when one has to make bill payment or fund transfer from one account to another.

Continue reading “Why is mobile banking so popular?”

      Internet banking is one of the most popular methods of banking today, used by people across the globe. It is also known as e-banking or online banking.

       As the name suggests, it is an electronic payment system provided by the banks in general to conduct a wide range of transactions through their website.

       Like all modern kinds of banking, this one too enables transfer of money from account to account and check balance all this through a computer.

        To use this facility, customers need to first activate the option of e-banking. Websites of banks differ from each other, but in general, management of accounts are easy in net banking. The customer should at first log onto the bank’s website, and enter the user ID as well as password. He is then automatically guided to the page where he is given different options for transactions.

        Banks use various security measures to make sure that the technology is not misused by fraudsters. 

         There are different methods of money transfer in banks today. Let’s look at a few of them.

         RTGS or Real Time Gross Settlement System is one way where funds can be transferred between two banks located anywhere that has enabled RTGS. As the name suggests, transfer happens in real time, and there is no delay involved. Users can transfer large amounts starting from Rs 2 lakhs. There is no upper limit for transaction, through RTGS. Also, there is lesser risk compared to other modes of transfer, as it is done quickly and via the Internet.

         Yet another is the NEFT or National Electronic Fund Transfer, a nation-wide system which allows fund transfer from any bank branch to any other in the country. Any sum up to Rs 10 lakhs can be transferred through this system.

         Another service is the ECS, or Electronic Clearing Service which enables institutions to make payments such as salary, pension, bills etc. in an automated manner. EFT or Electronic Fund Transfer also helps transfer money from one bank account to another without direct handling of money.

           In simple terms, a credit card is a payment card issued by banks to its customers, to use for purchasing goods and services. It is like borrowing money from your bank for shopping, and then repaying it with an interest amount.

            This helps in many situations, especially when you are shopping. You need not carry cash along with you, but just have to give the shopkeeper your credit card. The money will be paid by the bank which issues the card. You can use the card not just for shopping, but paying for services too.

          Credit cards can be very helpful until you delay repayment. A late fee will be charged extra, as decided by the bank, and could possibly be very high! Smart users pay back the amount due every month, so that the debt amount doesn’t get too big.

          There is also a limit up to which money can be credited. It is fixed by the bank, depending on your ability to handle the debt. An intelligent use of credit card will help the customer. 

Similar to credit cards, debit cards are also issued by banks to their customers to help them purchase goods and services. But in their functions, these two cards are quite different.

While using a debit card, money gets deducted from the user’s bank account itself. One can use it for shopping and bill payment, in the same way that a credit card is used. But the moment a transaction is completed, money gets debited from his or her account. This also means that there is no need for repayment.

In most cases it is the same debit card that we use at ATMs for withdrawing money. These cards are used for online shopping too.

The card has a Personal Identification Number or PIN, which has to be used for carrying out a transaction. There are different brands of debit cards used in our country, all of them developed by private companies. Apart from these, the National Payments Corporation of India launched a new one named ‘RuPay’ in March 2012. It has been a success since its launch.

          Electronic commerce or e-commerce, in its simplest definition, is trade through the Internet.

         In other words, it helps exchange goods and services electronically, without the customer having to cross barriers of time and distance.

         For example, a customer can buy anything and everything through online markets- from groceries to advanced equipment. This can be done using debit or credit cards. Net banking is also a method of e-commerce.

        The major attraction of such online trading includes convenience, accessibility, and round-the-clock service. Some of them come with a lot of offers too.

        Yet another advantage is that the products of purchase reach the consumer wherever he is. Of course, there are drawbacks to online dealings. You see the purchased product in real life only when it reaches you.

        There could also be delay in delivery. And in case the customer service is not good enough, the shopping may end up in disappointment.

        Yet another threat is the increasing number of online frauds. The customer should always be alert while shopping online, although most of the established firms adopt strong security measures. 

       As the name suggests, representative money ‘represents’ something that is usually valuable. It is not money, but a symbol. So naturally, it does not consist of coins or banknotes.

       In other words, representative money is a token or certificate given in exchange for valuable things like gold, silver, oil etc. It is linked to the commodity that backs it and hence, is also known as ‘commodity-backed money’.

        The concept is believed to have originated with the ancient Sumerians. History goes that small baked clay tokens in the shape of cattle were used instead of real animals in barter system. Later, representative money gained popularity among pilgrims in the Middle Ages.

         In the 19th century, a lot of currencies acted as representative money as they were exchanged for a fixed amount of real money.