Having money exactly when you need to it—and earning income on it when you don’t—is a problem as old as money itself. Banks exist to solve that problem, and have served as an intermediary between savers and borrowers since the Italian Renaissance, the Crusades, or even earlier, depending on which historians you consult.
More specifically, banks lend the funds deposited into savings accounts and certificates of deposit (CDs) to other customers, who repay the money with interest over time. Depositors entrust their money to banks for two reasons: 1) banks offer safe-keeping, borne from FDIC insurance; and 2) banks pay interest on deposits, allowing funds to grow over time. Banks, in turn, make money, by charging a higher rate of interest on their loans than what they pay on deposits. Banks can have other sources of revenue as well, including investments, fees on various services, and commissions on the sale of financial products such as mutual funds and insurance.
In addition to serving as a vector for borrowing and lending, banks play a central role in a number of other financial mechanisms. For example, banks process payments between buyers and sellers and they exchange foreign currencies. Banks also carry out governmental monetary policy by increasing or decreasing the amount of money they keep in reserve.