3 questions about banking – answered

With its countless regulations and slang vocabulary, the financial services industry can sometimes be difficult to understand. In this series, MidWestOne employees will be answering common questions about banking.

1. What is the Federal Reserve, and how does it work?

The Federal Reserve – or the “Fed” as many people call it – is the bank of the U.S. government and oversees the country’s financial institutions. The system consists of a network of 12 Federal Reserve Banks, and a number of branches, that are overseen by the Fed’s Board of Governors.

The Fed is mandated with making sure the U.S. has a sound banking system and a healthy economy. To do that, it adjusts monetary policy to help maintain employment, keep inflation in check and adjusts interest rates to help the economy. In addition, it supervises and regulates banks to ensure they are a safe place for people to keep their money.

2. What different types of banks are there?

There are numerous types of banks. The banks most people know and interact with are called commercial banks. These types of banks provide services, such as accepting deposits; giving business loans, auto loans and mortgages; and providing basic investment products like savings accounts and certificates of deposit.

Investment banks are another type of bank. Investment banks create and make investments in companies and other assets, primarily by accessing capital markets, such as the stock market or bond market. For example, if a manufacturer wanted to sell $1 million worth of bonds to build a new plant, an investment bank could help find buyers for the bonds and handle the transaction.

While these are the two most common banks, there are others, including land development banks (or land mortgage banks), industrial development banks, indigenous banks, exchange banks and more.

3. Are the deposits in my bank account insured?

They are if your financial institution has FDIC insurance. Most banks – including MidWestOne Bank – are FDIC insured.

The Federal Deposit Insurance Corporation, or FDIC, is an independent agency of the U.S. government that protects your deposits in the unlikely event of the failure of the insured bank or savings institution.

FDIC deposit insurance covers the balance of each depositor’s account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank’s closing. The FDIC insures all types of deposits received by a financial institution including:

• checking accounts
• NOW accounts
• savings accounts
• money market deposit accounts
• certificates of deposit (CDs)