What Are the Different Types of Banks That Exist Today?
The vast majority of American households use banks, with only a little over 5 percent of all households going unbanked. It makes sense, as most people rely on their banks for basic checking and savings services. Plus, many banks make it easy for people to handle nearly all of their banking online or through apps on their phones.
Yet, despite this widespread adoption of banks as the norm, many people don’t realize that there are several types of banks. Some of these banks don’t even offer services to average consumers. Keep reading to discover what kinds of financial institutions are out there.
Retail banks are the ones that most people use and understand best. These are your national banks and local banks that provide basic financial services, such as:
- Checking accounts
- Saving accounts
- Personal loans
- Small business loans
Some of the larger banks may also provide credit cards and retirement accounts.
Online-only banks are a special kind of retail bank. They offer similar services, but there are no physical branches to visit. Many people see them as the smart banking option because often offer better interest rates on savings accounts.
Credit unions provide an alternative to retail banks. You can typically get the same or similar services. What separates them from retail banks is that they operate as non-profit, member-owned financial institutions.
Some commercial banks offer services to regular consumers, but they focus on providing services to large and small businesses. For example, they provide checking account services to businesses, help manage international funds transfers, and offer loans. The best commercial banks will also provide business-specific services, such as corporate credit cards, asset management, and online payment systems.
The average consumer will never deal directly with an investment bank. This branch of the banking industry generally provides financial services for major corporations, other financial institutions, and even governments. For example, they might help companies transfer securities, deal with a merger, or help manage a company’s stock portfolio.
Central banks, such as The Fed in the US, take on a kind of managerial role in banking. They regulate other banks, handle the money supply, and try to manage issues like inflation.
Some people adopt alternative banking strategies, such as infinite banking. These strategies typically aim to limit or reclaim some of the interest that people pay out to banks every year.
The Types of Banks and You
While there are many types of banks out there, odds are good that you will only ever deal with one or two types of them. For your personal finances, you’ll likely deal with a retail bank or credit union. If you own a business, you may also deal with a commercial bank.
That doesn’t mean you should ignore other banks. The Fed, in particular, plays a huge role in setting interest rates for things like mortgages.
Looking for more finance information? Check out some of the other posts in our Finance section.