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. Some banks work in multiple areas or levels of finance and serve many different customer types. (Ex. a single bank might offer personal accounts, business accounts, and may even help large enterprises raise money in the financial markets).

Retail Banks – You are probably the most familiar with these types of banks which give you credit cards, offer loans, and have numerous branch locations in populated areas. Your checking and savings accounts are held at a retail bank, where its main focus is on consumers (or the general public) as customers.

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 US central bank, responsible for managing economic activity and supervising banks.

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 are different in terms of the fact that they often offer competitive rates on savings accounts and they’re especially likely to offer free checking.

 

Which Is The Best Bank For You?

There are a few broad categories you can choose from when deciding on a bank for your needs, each having its own pros and cons. The right type of bank for you depends on the services and features you want most. 

Traditional Banks– These banks come in a variety of sizes — from the “big four” (Wells Fargo, Bank of America, Citigroup, and JPMorgan Chase) to regional banks (such as Regions Financial and BB&T) 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 technology, such as online and mobile banking systems. Furthermore, the banks are also the most likely to have a widespread physical presence, both in terms of ATMs and branches.

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 as traditional banks do, and they have a non-profit business model, so they don’t charge customers any more than they need to. The personal experience offered by credit unions can come in handy when you’re trying to apply for a loan. They tend to get to know their customers (and local markets) more thoroughly and take a close look at loan applicants and their ability to repay, going beyond traditional indicators like credit score and pay stubs. 

Online Banks– 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.