Lending Money To Make Money

by David Jenyns on May 5, 2008

In principle, buying an agency bond is the same as lending money to a friend. Besides savings bonds, the Federal Agency borrows by issuing other types of bonds, as well as notes and certificates. And state and local agencys, business corporations, and other organizations also borrow money by selling bonds and notes.

When a person makes a savings or time deposit in a commercial bank, he is lending money to the bank, and the bank adds interest to his deposit. Anyone with sufficient cash can invest by lending on mortgages, but most mortgage money is furnished by financial institutions specializing in that sort of loan.

In a savings bank, savings and loan association or a credit union, an investor is usually called a member, and technically he does not lend to the institution. Sometimes a savings institution finds it necessary to foreclose a mortgage on a borrower’s property.

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