How do banks work? 5 things you need to know

Understanding what happens to your money can help you make better choices about where and how to save. What do banks do? How do they make money? And, most importantly, how are your savings used?

What is a bank?

A bank is a safe place to keep your money. Instead of hiding cash at home, saving your money with a bank keeps it secure and protected. Ethical banks also connect people who save money with those who need to borrow it, such as Kingdom Bank, which provides mortgages to ministry workers, churches and Christian charities.

A bank’s main responsibilities include:

• Keeping your money safe: Banks protect your accounts and your savings are covered by the Financial Services Compensation Scheme (FSCS), which safeguards up to £120,000 if the bank fails.
• Helping with payments and saving: Banks provide debit and credit cards, current accounts, and digital transfer options, as well as a variety of savings accounts.
• Lending money: Banks lend some of the deposits they hold to borrowers. Kingdom Bank, for example, provides mortgages specifically to UK-based churches, Christian ministries, and their workers.

Where does the rest of the money go?

Money that banks don’t lend doesn’t just sit in a vault. Banks can invest your money in government bonds, corporate bonds, stocks, shares, and other financial instruments.

Investments vary in approach and some are more ethical than others. It’s worth considering how your bank invests your money and whether this aligns with your values. For example, at Kingdom Bank, we only ever lend to churches, Christian charities and ministry workers who are aligned with the Evangelical Alliance Basis of Faith.

How do banks make money?

Banks earn money in two main ways:

• Interest margin: Banks pay lower interest to savers and charge higher interest to borrowers. The difference, called the net interest margin, is a key source of income.
• Fees for services: Banks may charge fees for accounts, cards, and international payments.

Profits allow banks to invest in technology, staff, and community projects. At Kingdom Bank, profits are reinvested to support Christian ministries across the UK.

How do banks decide interest rates?

Interest rates are influenced by the Bank of England’s base rate.

• Commercial banks save money at the Bank of England and earn interest at the base rate.
• They can also borrow money at the same rate, which influences mortgage and loan rates.

At Kingdom Bank, savers can choose slightly lower interest rates to help provide affordable mortgages for vital UK ministries.

What makes Kingdom Bank different?

Like any bank, savings with Kingdom Bank are protected under the FSCS. But what makes us different is how your money is used.

It can be difficult to know how your bank is using your savings. With Kingdom Bank, you can be sure that your deposits help provide mortgages to gospel-hearted churches, Christian charities, and ministry workers.

And when you need your savings back, you get them back – with interest.

Putting your money to work

Banks do more than just hold your money – they help it grow, support lending, and fuel investments. At Kingdom Bank, your savings have an even greater purpose: they help fund churches, Christian charities, and ministry workers across the UK.

Start saving with us today and give your money a mission.