How did banking begin? - II

But the opportunity to earn lots of interest won’t count for much if a borrower fails to repay a loan. That’s why banks often refuse to make loans that seem too risky. Before lending you money, they look at: 

• how much and what types of credit you use, such as credit cards, auto loans, or other consumer loans; 

• whether or not you have a history of repaying your loans, and 

• how promptly you pay your bills. Banks also use interest to attract savers. After all, if you have extra money you don’t have to put it in the bank. You have lots of other choices: 

• You can bury it in the backyard or stuff it in a mattress. But if you do that, the money will just sit there. It won’t increase in value, and it won’t earn interest.

 • You can buy land or invest in real estate. But if the real estate market weakens, buildings and land can take a long time to sell. And there’s always the risk that real estate will drop in value. 

• You can invest in the stock market. But like real estate, stocks can also drop in value, and the share price might be low when you need to sell. 

• You can buy gold or invest in collectibles such as baseball cards, but gold and collectibles fluctuate in value. Who knows what the value will be when it’s time to sell? (In 1980, gold sold for $800 an ounce. By 1983, the price had sunk below $400.) Or you can put the money in a bank, where it will be safe and earn interest. Many types of bank accounts also offer quick access to your money.