Many people are engaged in this or that accumulation. So, some save up working days, so that later they get a big wellness vacation, others collect things, and then all the accumulated things are safely transported to the country, and still others prefer to accumulate money. In the article, we will consider in more detail the last hobby, which is called “accumulation of funds” in the literary language.
Definition of a concept
What is accumulation in general? Translated from Latin, this word means "accumulation." In our case, we are talking about the financial side of the issue, and, therefore, the accumulation of funds implies the accumulation of their own or external funds attracted in order to benefit by providing these financial assets to a needy person at certain interest rates.
In simple words, cash accumulation is a good way to increase capital. From the outside, everything seems pretty simple, but nowadays there is a problem of uniting people who own free funds to the required extent and people who need them.
Accumulation functions
The accumulation of money is an important phenomenon in the economy of any state. Among the main functions that are performed by this process, the following should be indicated:
- Redistribution of financial assets, support for businessmen and entrepreneurs. So, often the borrowers of banks are representatives of medium and small businesses, as well as individual entrepreneurs. There are situations when initiative people have great ideas and develop promising projects, but there is no finance for their implementation in practice. Here, accumulated funds come to the rescue, which are concentrated in the same hands and can be sent to those who know how to make money not just lie in the bank, but work.
- Save valuable time looking for borrowed money. Instead of concluding loan agreements with several holders of available funds, it is enough to turn to one.
- Getting a good profit. As you know, the accumulation of funds is beneficial both to those who accumulate money, and to those who contribute their free funds and for this receives a previously agreed percentage. According to many financiers, assets should not be “dead” capital, but, on the contrary, always rotate in cash flows, as inflation manifests itself constantly and can cause the depreciation of “cash” in the chest of drawers.
Examples of fundraising
Often ordinary citizens and owners of small or medium-sized businesses have situations when a large sum is urgently needed, but this is not in their hands. In this case, a citizen can apply to several borrowers and collect the necessary amount of money (for example, to buy a house or a car). The citizen will have to pay interest on time to each of the borrowers in the future. This, of course, is inconvenient and time consuming. And if one of the borrowers combined their free funds and strangers with them and occupied them with a needy citizen, then this would be an accumulation of monetary funds of citizens. The Bank today in the financial world plays a leading role in terms of the concentration of its and other people's money and their subsequent use. Therefore, most of the population now prefers to apply for a loan to a banking organization rather than to a private person.
Bank accumulation
In modern society, the most striking representative, which is characterized by the accumulation of funds, is the credit and commercial structures, in particular, banks. They are the ones who concentrate the free money of the population with the aim of their further redistribution and profit.
Few people know, but previously, banks used exclusively their own available funds. However, over time, the popularity of these organizations grew significantly, and they began to borrow money from citizens. Thus, various types of deposits appeared. Why are such deposits needed by the banks themselves? The accumulation of money by the bank is done in order to attract free financial resources of the population and their redistribution for a more significant percentage. The whole point is that a person transfers his funds to the bank and takes him a certain amount at a percentage (the corresponding interest on the deposit). The bank, having received this money, takes it to people in need at an even higher percentage, that is, it provides a loan.
According to statistics, today banks have about 20 percent of their own funds in their arsenal, while attracted funds make up 80%. This information confirms the fact that a banking organization is a kind of intermediary between people who own free money and people who need them.
Methods of bank accumulation
One of the most common way to attract free funds of the population and non-profit organizations is deposits. To attract as much money as possible, banking institutions use such forms of savings as: bonus, pension, youth, winning, etc. In some countries, in addition to the interest received from the deposit, additional services are provided to the population (free postal transfers, telegraphic, trading services, etc.). For example, in the United States, fixed-term deposits of the population are in first place among term deposits.
Features of banks
The work of a banking organization in the accumulation of funds has a number of features:
- the bank directs the accumulated funds to solve other people's problems (needs);
- accumulated funds by ownership right still belong to the one who brought them to the bank;
- activities involving the accumulation and redistribution of funds must necessarily be confirmed on paper - licenses;
- own free funds make up only a small part of the total capital of the bank;
- the accumulation of free cash is the most important function of a financial institution.
Advantages of accumulation
Consider what good savings are for citizens and the state as a whole. The accumulation of monetary funds of citizens allows the holders of free money to profit from them. In addition, accumulation helps to develop small and medium-sized businesses in the country, replenish the state treasury, and at the same time improve the living standards of the population. As for the replenishment of the state budget, state-owned banks play a significant role here, which act as guarantors of preserving citizens' deposits. Often people, choosing between private commercial organizations and state-owned, opt for the latter, since the level of trust is much higher. Commercial structures, in turn, attract people with higher interest rates on deposits and lower interest rates on loans.