CBSE · Class 10 · Social Science · Economics: Money and CreditHow do banks mediate between depositors and borrowers?

Banks keep only a small proportion of their deposits as cash with themselves to pay daily withdrawal requests from depositors. They use the major portion of the deposits to extend loans to people who need financial assistance. By charging a higher interest rate on loans than what they offer to depositors on their savings, banks earn their income from this interest rate difference, thereby successfully bridging the gap between savers and borrowers.