What Is a Bank?
Quick Answer
A bank is a place where people keep their money safe. You can put money into a bank (called a deposit) and take it out when you need it (called a withdrawal). Banks also lend money to people and businesses and pay you a small reward called interest for letting them hold your savings.
Explaining By Age Group
Ages 3-5 Simple Explanation
You know how you might have a piggy bank at home where you put your coins? A real bank is like a giant piggy bank for grownups — but much, much safer! It's a special building where people keep their money so it doesn't get lost or stolen.
When your mom or dad goes to the bank, they might put money in or take money out. Putting money in is called a deposit. Taking money out is called a withdrawal. The bank keeps track of exactly how much money each person has, kind of like a scorecard.
Banks also help people in another way. If someone needs money to buy a big thing like a house or a car, the bank can lend them the money. Then that person pays the bank back a little bit at a time. It's like when you borrow a toy from a friend and promise to give it back.
You don't have to go inside a bank building to use one anymore. Grownups can check their bank money on their phone or computer. They can also use ATM machines — those are the machines on the street or at stores where people get cash out.
Ages 6-8 More Detail
A bank is a business that takes care of people's money. When you put money in a bank, it's called making a deposit. The bank stores your money safely and keeps track of exactly how much you have. When you need it back, you make a withdrawal — you can go to the bank, use an ATM machine, or have your parents use an app on their phone.
One cool thing about banks is that they pay you for keeping your money there. This is called interest. If you put $100 in a savings account, the bank might give you an extra dollar or two over time. It's like a little thank-you for letting them hold your money.
Banks don't just sit on everyone's money in a big vault, though. They take some of the money people deposit and lend it to other people. If someone wants to buy a house but doesn't have enough money, they can borrow from the bank and pay it back over time. The bank charges them for this service — that's also called interest, but in this case the borrower pays the bank.
There are different kinds of bank accounts. A checking account is for money you use every day — paying for groceries, bills, and stuff like that. A savings account is for money you want to keep and grow over time. Many kids have savings accounts where they deposit birthday money or allowance.
Banks have been around for hundreds of years. Before banks existed, people had to hide their money at home, which was risky — it could get stolen or lost in a fire. Banks solved that problem by offering a safe, reliable place to keep money. Today, your money in a bank is even protected by the government through something called FDIC insurance, so even if the bank has problems, your money is safe.
Ages 9-12 Full Explanation
A bank is a financial institution that accepts deposits, makes loans, and provides other money-related services. At its core, a bank acts as a middleman — it takes money from people who want to save it and lends that money to people who need to borrow it. Both sides benefit: savers earn interest, and borrowers get access to money they don't have yet.
Here's how the basic model works. You deposit $1,000 in a savings account. The bank pays you a small amount of interest — say 2% per year, or $20. Then the bank lends that same $1,000 to someone buying a car, but charges them a higher interest rate — say 6%, or $60 per year. The difference between what the bank earns on loans and what it pays to savers is how banks make money.
Banks offer several types of accounts. Checking accounts are for everyday use — paying for things with a debit card, writing checks, and paying bills online. Savings accounts are for money you're setting aside, and they usually earn more interest. Some banks also offer certificates of deposit (CDs), where you agree not to touch your money for a set period in exchange for even higher interest.
Beyond savings and loans, banks provide many services. They issue credit cards, handle wire transfers between countries, offer safe deposit boxes for valuable items, and help businesses manage their finances. Online banking and mobile apps have made it possible to do almost everything from your phone — checking your balance, transferring money, and depositing checks just by taking a photo.
Banks are tightly regulated by the government to keep your money safe. In the U.S., the Federal Deposit Insurance Corporation (FDIC) guarantees your deposits up to $250,000 per account. That means even if a bank goes out of business, the government makes sure you get your money back. This system was created after the Great Depression, when many banks failed and people lost their savings.
Understanding how banks work is a key part of being good with money. The sooner you start saving in a bank — even small amounts — the more your money grows over time because of something called compound interest. That means you earn interest on your interest. Starting early, even with just a few dollars a week, can add up to a lot over the years.
Want explanations personalized for YOUR child's exact age?
Download WhyBuddy free on the App Store. Get instant, age-appropriate answers to any question your child asks.
Tips for Parents
A bank can be a challenging topic to discuss with your child. Here are some practical tips to help guide the conversation:
DO: Follow your child's lead. Let them ask questions at their own pace rather than overwhelming them with information they haven't asked for yet. If they seem satisfied with a simple answer, that's okay — they'll come back with more questions when they're ready.
DO: Use honest, age-appropriate language. You don't need to share every detail, but avoid making up stories or deflecting. Kids can sense when you're being evasive, and honesty builds trust.
DO: Validate their feelings. Whatever emotion your child has in response to learning about a bank, acknowledge it. Say things like 'It makes sense that you'd feel that way' or 'That's a really good question.'
DON'T: Don't dismiss their curiosity. Responses like 'You're too young for that' or 'Don't worry about it' can make children feel like their questions are wrong or shameful. If you're not ready to answer, say 'That's an important question. Let me think about the best way to explain it, and we'll talk about it tonight.'
DO: Create an ongoing dialogue. One conversation usually isn't enough. Let your child know that they can always come back to you with more questions about a bank. This makes them more likely to come to you rather than seeking potentially unreliable sources.
Common Follow-Up Questions Kids Ask
After discussing a bank, your child might also ask:
Where does my money go when I put it in a bank?
The bank doesn't just lock it in a vault. It lends most of your money to other people and businesses who need to borrow it — for things like buying homes, starting businesses, or paying for college. The bank keeps enough on hand to cover withdrawals and pays you interest as a thank-you for letting them use your deposits.
Is my money safe in a bank?
Yes. In the U.S., the Federal Deposit Insurance Corporation (FDIC) insures bank deposits up to $250,000 per person, per bank. That means even if the bank runs into trouble, the government guarantees you'll get your money back. This makes banks one of the safest places to keep your money.
What is an ATM?
ATM stands for Automated Teller Machine. It's a machine that lets you take cash out of your bank account, deposit money, and check your balance without going inside the bank. You use a bank card and a PIN (a secret number) to access your account. ATMs are found at banks, stores, airports, and many other places.
Can kids have a bank account?
Yes! Many banks offer savings accounts for kids, usually opened with a parent or guardian. These accounts let you deposit birthday money, allowance, or money you earn. Watching your savings grow — even a little at a time — is a great way to start learning about money management early.
What's the difference between a checking account and a savings account?
A checking account is for money you use regularly — paying for things with a debit card, writing checks, paying bills. A savings account is for money you want to keep and grow over time; it usually earns more interest but may have limits on how often you can take money out. Most people have both.
You Might Also Want to Explain
Want explanations personalized for YOUR child's exact age?
Download WhyBuddy free on the App Store. Get instant, age-appropriate answers to any question your child asks.