Banking and Financial Institutions
Types of Banks
Banking in Jamaica is very important, as well as everywhere around the globe. In Jamaica, the Bank of Jamaica (BOJ) performs the role of the central bank. The central bank is a type of financial institution. Financial institutions are businesses that engage in financial and monetary transactions. Some other type of financial institutions include: credit unions and commercial banks. In order to fill its role as the central bank, the BOJ oversees banks in Jamaica, issues and redeems the local currency, and monitors and administers the country’s reserves. Simply put, Banking in Jamaica acts as the country’s bank. The role of the central bank differs from the role of a commercial bank and credit union.
The bank that is used by most people is called a commercial bank. This type of bank is where people can go and put their money in (make a deposit) or borrow money (take out a loan). A commercial bank is a for-profit institution. Even though it serves the public, it seeks to make a profit for its owners.
Credit unions are not traditionally utilized by the public even though they also allow users to make a deposit and take out loans. This type of bank is created for the benefit of its members. A credit union is a non-profit institution that serves its members ONLY.
This chapter will focus primarily on the services provided by commercial banking in Jamaica and all around the world.
Commercial Banks: Types of Accounts
As mentioned above, the primary function of a commercial bank is accepting deposits and lending funds. Deposits are in the form of savings, current, or time deposits. The most popular of these are savings and current accounts.
Savings
A savings account is an account within which you deposit money with the bank for the purposes of saving. The money that is deposited is called the principal. In this way, banks allow their customers to earn interest on their savings. Interest, in terms of savings accounts, refers to extra money given to a customer by the bank. However, the interest or the amount of money given to the customer depends on the amount of money held in the savings account. The rate of interest varies from bank to bank.
Current
A current account is one within which money is deposited to carry out business or personal transactions. Current accounts do not earn interest, but they do help to keep money secure. They also help account holders to keep track of their finances.When accountholders take money from their current or savings account, this is called a withdrawal.
Loans
Most commercial banks give loans to anyone for any purpose. When a loan is given to a business, it is called a commercial loan. On the contrary, when a loan is given to an individual for personal use, it is called a personal loan. In brief, a loan is any amount of money given at an interest by a bank to a borrower.
Interests on loans work similarly to interests on saving account EXCEPT that the interest is paid by the borrower. When a loan is being repaid, the borrower must repay the principal and the interest. Principal refers to the amount of money lent.
How to Open An Account?
In Jamaica, the documents need to open a bank account varies from bank to bank but most banks require that you have the following:
- Taxpayer Registration Number (TRN)
- Proof of Valid Identification
- Referees
- Proof of Address
- Minimum Opening Deposit
- Proof of Income
Index of Key Terms
Central Bank
Financial Institution
Commercial Bank
Credit Union
Deposit
Withdrawal
Loan
Commercial Loan
Personal Loan
For-Profit
Non- Profit
Savings Account
Current Account
Principal
Interest
Interest Rate