Most Common Types of Banks (And Which is Best for You)

Most Common Types of Banks (And Which is Best for You) | Student FinTech

When thinking about the actual function of a bank, the first thing on most people’s minds is that a bank is a place that holds your checking or savings account. While that viewpoint is valid, this is only a basic view of a bank and what they actually can provide for you. The differences between the various types of banks are not always clean cut. Every bank has different features and may work with a variety of customer types. So, which is right for you? Here’s what you need to know about each type of bank.

Retail Banks

You’re probably the most familiar with this type of bank. JP Morgan, Bank of America, and Wells Fargo are three examples of retail banks. These banks offer many financial services under one roof, including checking and savings accounts, credit cards, loans, and lines of credit.

Investment Banks

These banks are for businesses who work in financial markets. A business will often use an investment bank if it wants to go public or sell the debt to investors. 

Central Banks

These banks manage the monetary system for a government. For instance, the Federal Reserve Bank is the central bank in the U.S., responsible for managing economic activity and overseeing banks in the country.

Credit Unions

These are generally not-for-profit organizations, owned by their customers (most banks are owned by investors), offering products and services that are more or less identical to most retail and commercial banks.

Commercial Banks

This type of bank focuses on business customers, which, like individuals, need checking and savings accounts. At the same time, commercial banks need more complex services, and the dollar amounts (or the number of transactions)  they deal with can be much larger.

Mutual Banks

Are owned by members (or customers) instead of outside investors, so they are essentially similar to credit unions.

Online Banks

They operate completely online, without physical branch locations available to visit. Though there are many brick-and-mortar banks also offering online services, such as the ability to remotely view accounts and pay bills online, internet-only banks vary in that they often offer lower rates on savings accounts (and typically free checking accounts) than other banks.

Which is the best for you?

While each bank is different, they tend to fall into one of three categories: traditional banks, credit unions, and online banks. Each has its pros and cons, so take a look at the typical services and features each offers and decide what’s most important to you to help you make your decision.


These banks come in a variety of sizes – from the longstanding banks like Wells Fargo and Bank of America, to regional banks, to small local banks. Technology and convenience are two of the biggest reasons to choose a traditional bank, with the banks investing more money than credit unions in their technology, such as online and mobile banking systems. These banks also cover the most area in terms of ATMs and branches available across the country.

Credit Unions

A credit union may be the way to go for you if you want a more personal banking experience. The best reason to choose credit unions is that they generally charge lower fees and pay better interest rates on deposits than traditional banks do. Moreover, credit unions don’t invest as much money in technology and other state-of-the-art features, and because they’re non-profit, they don’t charge customers any more than they need to. Plus, the personal experience offered by credit unions can come in handy when you’re trying to do things like apply for a loan. Since credit unions tend to get to know their customers and local environments better than bigger banks do, they’re able to dive deeper into loan applications and look further than traditional measurements, such as credit score.


An online bank isn’t for you if you enjoy going to a bank or have a frequent need to conduct any of your banking in person. Some compelling benefits offered by online banking include: 

  1. Convenient 24/7 access to your accounts from your desktop or mobile device.
  2. Telephone service available anytime which can provide access live person if you need to talk to an actual banker.
  3. Some of the best interest rates on savings accounts and CDs, as well as lower fees, since they don’t deal with the costs associated with operating a physical branch network.

There is no one-size-fits-all. When it comes to selecting the best option, it all depends on your personal needs and which features matter to you the most.