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[Music] hi everyone this is rohit i'm the co-founder and ceo of stealth and today i'm going to tell you how the u.s banking system works every country's banking system is unique and the us is no different so it's important to understand where your money is going when it goes to a bank to feel comfortable that your money is safe so there are no surprises it just helps to know how the money is regulated and sort of moves around in the system i'm going to talk about government agencies different types of banks and how uh banks make money please like and subscribe if you find this video useful your support helps us please the youtube algorithm gods and show this video to more people like you the first thing you need to know about the u.s banking system is the federal reserve so the government agencies that manage the banks there are three agencies one is the federal reserve second is the occ which is the office of the comptroller of the currency and the third one is fdic which is federal deposit insurance corporation so federal reserve is the central bank of the us uh simpler comparison could be uh rbi in india they are not exactly the same but uh kind of similar uh that's the that's the simplest way or the simplest comparison uh with another central bank or european central bank in the euro which is ecb so the federal reserve uh has mainly uh three or four functions the first one is to regulate all the banking system in the us the federal reserve uh tries to manage money supply by managing money supply they do three main things one is they control inflation and deflation second they control the interest rates and through these tools they control unemployment rates so the federal reserve reserve wants to make sure that the economy is growing well second agency the office of the comptroller of the currency which is the occ the occ's responsibility is to uh is twofold one is to make sure that there is enough competition amongst the banks and second that the banks are accountable uh to the services that they uh supposed to offer so that's the occ third is fdic which is the federal deposit insurance corporation and uh fdic's sole responsibility is to guarantee your money almost every bank in the us is guaranteed by fdic for up to two hundred and fifty thousand dollars what that means is if the bank shuts down or closes or takes your money and run away then fdic is going to step in and reimburse you for up to two hundred and fifty thousand dollars uh worth of deposits that were in the bank account so fdic also uh works really hard to regulate banks because if they if the bank fails then fdic is on the hook for the money so those are the three three uh big agencies in the us now coming to uh a bank what does a bank do in the u.s the the primary function of the bank is the same across all countries uh in the world first a bank needs to be a depository institution so what they need to do is take your money and hold it safe for you second it provides credit functions uh to you uh so it provides products like credit cards personal loans auto loans mortgages so on and so forth uh so so and so the bank needs to make sure that it is fulfilling its responsibility towards consumers by providing them good credit products the the third function of the bank is to make sure they're matching the deposits with the uh with the credit products so once you deposit the money in the bank the bank is kind of pools uh everyone's money and then lends it to the people who need them and they obviously charge an interest rate for it uh and the way bank uh in shorthand make money is by taking the difference between the interest rate that they charge and the rate that they pay for you to deposit money in the bank account in the us the savings rate is almost zero percent so you really don't make any money when you put your funds in a bank account so let's talk about the the banks themselves there are more than 4 000 banks in the us i think the exact number is around 4 700. so the three agencies that i mentioned earlier which is the fd the federal reserve the occ and the fdic they are responsible for managing and monitoring and regulating these 4 700 banks in the us us is one of those countries that follows a dual banking system so what that means is there are nationally chartered banks and there are state chartered banks it's easy to recognize a nationally chartered bank because they are required to have like national or federal uh in their name and with one charter they are able to uh serve customers across all of the u.s and they are managed by the federal reserve and the occ uh primarily now state like state regulated banks uh are have charter only for uh to operate in a certain state for example if you're in texas a state charter texas bank can operate only within texas these banks also have to comply with the state regulations there are usually department of financial institutions or local federal reserve boards to manage these state banks so those are the two main types of banks most of the banks in the us are the most of the big banks in the us are nationally chartered uh the the smaller uh banks uh like uh your community bank uh and and and the like maybe on the state chartered so make sure uh depending on uh the the type of uh life you have in the us if you are gonna move across the country or move between states it's better to have an account with the nationally chartered bank now let's talk about the different types of the banks in the u.s there are five major types of banks in the us the first one is a retail bank second is a commercial bank third is a credit union uh fourth is a savings bank and fifth uh is are the more up-and-coming new banks let's talk about them uh one at a time retail banks so gta banks are your normal run-of-the-mill banks with branches examples include jpmorgan chase bank of america wells fargo uh citibank uh pnc so on and so forth so these retail banks primarily serve retail customers which are individuals like you and me they also serve small businesses so you can open a small business account and they also sort of serve big businesses but their primary function or most of their accounts are usually with retail customers and that's why they are called retail banks the second type of bank are commercial banks so these types of banks are primarily are primarily focused on surveying businesses uh there is not a huge distinction between retail and commercial banks aside from the fact that commercial banks try to focus mainly on businesses and and not serve retail customers even though they can serve individual customers it's just the uh just the business model that they have chosen to serve mainly uh businesses and and large companies the third type of bank are credit unions now they don't have a bank uh in their name but usually you uh usually you'll see a lot of credit union associated with your university your employer or uh or the community that you are living in credit unions are additionally uh regulated and monitored by ncua which is national credit union association now credit unions are non-profit organizations unlike retail banks commercial banks savings banks and neo banks credit unions require someone to open an account with them so be a member of their credit union if you want to access all of their services so you can go uh to a retail bank let's say like a like a jp morgan chase and try to get a loan from them uh even without having a checking account with jpmorgan but you cannot do that with a credit union they would want you or they would require you uh to be uh their members so opening a checking account with them depositing your salary in in in the credit union before you can actually take a loan the next one are savings banks uh these banks don't necessarily uh function uh as someone's day-to-day account they usually try to acquire customers or get funds uh in in their banks uh for savings function so you can and and they generally offer higher interest rates uh than your normal retail banks and uh credit unions for for savings and checking accounts so people generally just park their money in these savings banks and they offer slightly higher interest rate they are not usually they won't make they may not give you a debit card they may not have a lot of other functions uh that you may need from a normal banking account the last ones are neobanks so neobanks are are more up and coming primarily online only banks which offer you services through an app and they are generally built on top of these smaller state chartered banks or credit unions or community banks and they provide you services in a more seamless way all of these banks including the new banks that i mentioned earlier are fdic in shorter most of them are ffdic insured so funds deposited in any of these bank accounts is guaranteed by the federal deposit insurance corporation for up to 250 000 so these are the five types of banks retail banks uh commercial banks credit unions uh savings banks and the more up and coming neo banks now let's talk about how do these banks make money as i briefly mentioned earlier one of the primary functions of the bank is to provide credit services is to lend money uh to customers and the way bank make banks make money is they take your deposits they pull them together and they lend to people uh who need to borrow so when you deposit funds in your bank account uh your bank may offer you a very low interest rate or a slightly higher interest rate it can go from anywhere from point zero point zero three percent uh to one percent uh in in these times uh but it can go as high as 1.5 uh and and uh two to three percent but there are hardly any any banks that offer uh those high interest rates including savings banks but once you deposit the funds uh the banks uh sort of have this pool of money and uh another set of consumers who need to borrow come to the bank and bank lends to them charging them on depending on the product like credit cards that average 15 personal loans that average 10 to 12 um uh mortgages are three to four percent uh so on and so forth so so banks lend this money to uh customers and then they make the spread so they are lending at an average of ten to twelve percent but they are paying you for deposits only like 0.03 uh so they make a spread of 10 but the bank has to function has to meet all its obligations has to um uh pay salaries has to pay for branches and everything uh from that 10 spread so so it is in in the bank's best interest to have a lot of money uh sort of out uh uh as loans to customers uh and uh a lot of deposits the bigger the amount is uh the better uh it is for the bank and and the biggest bank in the us has is jp morgan has more than three trillion dollars uh in in assets including from consumers and businesses so banks are able to make hundreds and billions of dollars the big banks are able to make billions of dollars in revenue uh because of this uh interest uh income and that's the primary primary way that banks make money a lot of banks also offer brokerage services so if you want to invest money you open a brokerage account with them and then through that through that brokerage account you are able to invest in mutual funds uh etfs stocks so on and so forth and the bank sort of facilitates that for you so that's uh that's primarily how all the banks make money but the majority of the revenue comes from the interest uh that they earn on credit cards and loans and order loans and personal loans what you need like some of the terms that you need to know about to make sure you have a good banking experience in the u.s the first term is fees unfortunately u.s banks also charge a lot of fees which is highly undesirable uh but uh it's it's important for you to be aware of what those fees can be the first fee that every bank charges if almost everybody charges is an overdraft fee what that means is if you have hundred dollars in your account and you swipe your card or you make a make a transfer of more than a hundred dollars then the bank may front you the money or may lend you the money for for a few days uh for that amount so for example let's say you paid for something and it cost hundred and ten dollars but you only had hundred dollars in in your account so the bank will front you the remaining ten dollars but it charges you a fee and that fee on average is about 35 uh in the u.s and and that's considered an overdraft fee the second type of fee is uh insufficient funds fee so in same case uh you have a hundred dollars in your bank account and you go and you buy a thing for 500 the bank will not approve that transaction and return uh uh and fail the transaction uh from wherever you are trying to uh sort of buy something in that case again you won't be able to buy something but bank will still charge you uh 35 dollar insufficient funds fee because a transaction was returned so the second type of fee is insufficient funds fee now the third type of fee is your monthly monthly account fee and banks in the us generally want you to have a minimum balance uh in your checking account or and or savings account or they want you to set up direct deposit so money coming directly from your employer uh to the bank account in that case uh if you are not fulfilling the minimum balance requirements the banks may charge you a monthly account fee and they go anywhere from like ten dollars to fifteen dollars to twenty dollars um which is again like not desirable uh because you may not have enough money to deposit in a bank account but that's that's the third fee that you are charged and you also need to be careful when you open a bank account the banks may waive off that fee for a period of time but without you knowing uh they may start charging that fee uh after let's say six months or 12 months or uh maybe even after 24 months uh so these are the three major types of fee that you need to be aware of the last thing you need to be aware of is how the funds are transferred from a bank account in the u.s and that system in the u.s is called ech which means automated clearing house the salary that comes to your bank account the credit card bills that you pay there are some other bills that you will pay through your bank account are deducted through ach as a general principle anything that you are paying that is not from your card uh generally goes through the ach system and the ach system is is a slow system in the u.s so if you make a transfer today it may take up to three business days for the funds to be deducted from your account or for the funds to arrive in your account so make sure when you're doing transactions you know what's the timeline for the funds coming to your account or funds going out of your account so these are the main things that i wanted to uh briefly share with you about the us banking system uh as a tcap uh we talked about the three main agencies in the u.s one is the federal reserve the occ and uh the fdic we talked about the dual banking system in the u.s so nationally chartered banks state chartered banks are the most common ones uh then we also talked about different types of banks in the u.s retail banks commercial banks credit unions savings banks and the more up and coming neo banks and then we talked about how the banks make money kinds of fees that they charge and how you can make sure that you are not charged uh any fees so uh that's that's how that's pretty much it for today again please like and subscribe our channel if you found this video uh helpful uh we are always putting out more content uh to help immigrants and visa holders build better financial lives in the us and your support will be highly appreciated thank you you