Why Banks are an Effective Medium of Exchange?

Banks  are an effective medium of exchange for various reasons. These are discussed as follows:

1. Safety: Banks are considered the safest place to keep the valuables. The money will be protected from theives or fire etc.  Banks have many  security features like CCTV camera, private safe facilities, safety alarms etc.

2. Confidentiality : Most banks have a policy to not share thir customer’s details or data to anybody . 

3. Convenience: Banks are the most convenient way to access money. Customers can deposit and withdraw money from anywhere with the help of ATMs, cheques or debit cards. Banks also offer mobile and internet Banking which  allows customers to check their balances from their home and they make transactions from anywhere with the help of  internet banking services.

4. Speedy transections : In modern days, online transfer of money is the fastest way to send money from one bank account to another. The bank provides facilities like UPI  and Internet Banking which makes buying goods faster. 

5. Flexibility: Banks provide various flexible  offers to people who are in need of money. One can easily borrow or deposit  money at any time.

6. Convenience: Banks are the most convenient way to access money. Customers can deposit and withdraw money from anywhere with the help of ATMs, cheques or debit cards. Banks also offer mobile and internet Banking which allows customers to check their balances from their home and they make transactions from anywhere with the help of internet banking services.

7. Credit facility: Banks provide the facility of credit  to various individuals which allows them to purchase goods and services without cash. 

8. Encourage savings: Banks encourage customers to save their extra money at a fixed rate of interest and this helps them to use the money in times of need. 

9. Interest on deposits : Banks pay interest on deposits of their customers. This encourages people to save more and more money . This also provides  a source of funding for loans and investments to the banks.

10. Digital transactions facility: Banks provide the facility of digital  transactions over the phones  and the facility of checking their bank statements over the phone. 

11. Less formalities/ Paperwork: Banks provide the facility of borrowing without the use of too much  paperwork, which ultimately results in lesser formalities and ensuring a simple  process of borrowing money.

Conclusion

Banks are considered as an integral part of each and very  economy. They act as a medium of exchange and facilitate the transfer of money from one person to another. Banks are an effective medium of exchange because they provide safety, convenience, speed, confidentiality, digital transactions, flexibility, credit, interest etc.

By opening a bank account, people deposit their money in banks. Banks provide fixed interest (usually around 5%) on the deposited amount and help people to keep their money safe. People can withdraw their money whenever they want. They can transfer money from one bank account to another with the help of cheques, demand drafts and Internet banking. Nowadays, UPI apps are widely used methods of online payment services.

Banks are an important part of our daily lives. Banks are financial institutions that provide services like accepting deposits, withdrawing money and providing loans. One of the main functions of banks is to act as a medium of exchange. Only 15% of their total cash deposits are kept by a bank to meet their daily withdrawal requests.  They use their remaining money to provide loans to the people at a predetermined rate of interest.