Samantha is trying to decide where she should place her extra money. She has heard of two types of financial institutions—depository and non-depository. She isn’t sure what makes them different from one another. How would you explain the main difference between these two institutions? Depository institutions earn money from what customers put into the institution.

Depository institutions gain money from companies (insurance, mortgage, etc.).

Non-depository institutions earn a profit from the interest paid on loans made to customers.

Non-depository institutions are usually federally insured.

The two types of financial institutions—depository and non-depository

The main difference:

Depository institutions earn money from what customers put into the institution.

Non-depository institutions earn a profit from the interest paid on loans made to customers.

Explanation:

The best way to differentiate a depository institution from a non-depository institution is to compare the two terms.   Whereas a depository institution is a savings bank, legally allowed to accept monetary deposits from consumers (for example, commercial banks, savings and loan associations, or credit unions),  non-depository institutions do not accept monetary deposits from customers (for example insurance companies, pension funds, securities firms, government-sponsored enterprises, and finance companies), but they all render financial services.

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