Question

what do the banks do with the deposits which they collect from the public

Answer 1

Banks are considered as a sort of business house only where we actually buy and sell money. Money is the ultimate finished good. Depositors viz., public put their money in banks as these financial institutions lure them with high interest rates on deposits. More the number of depositors, more is the money credited and this money can then be used to give loans to other customers for which banks charge interest from them. So, a cycle of exchange follows. It is barter system of money.