What are the two main categories of financial institutions?

The correct answer identifies the two main categories of financial institutions as depository and non-depository. Depository institutions, such as banks and credit unions, accept deposits from customers, providing safekeeping for money and offering services like savings and checking accounts. They also typically make loans using the funds deposited by customers, facilitating the flow of money in the economy.

On the other hand, non-depository institutions do not accept deposits. Instead, they may provide services such as insurance (e.g., insurance companies), securities (e.g., stock brokerage firms), or investment products (e.g., mutual funds). This category includes various entities that contribute to financial services but operate outside the traditional banking system by offering services that cater to specific financial needs or investment opportunities.

These distinctions are essential in the financial landscape, as they highlight the different roles that financial institutions play in the economy and how they facilitate various financial transactions and services. Understanding these categories helps individuals and businesses navigate their options for saving, borrowing, and investing.