There are over half a dozen different types of banks. It is important to know what each type of bank does. This information can help one choose the right bank to do business with. The most common types of banks are retail banks, private banks, commercial banks, community banks, savings and loans institutions, central banks, investment banks, credit unions and online banks. Following is an overview of each type of bank.
Retail banks are the most common type of bank. Retail banks cater to the needs of individuals and small businesses. Retail banks offer services such as checking accounts, savings accounts, mortgage loans, credit cards, deposit boxes, CDs and various types of financing. Some of these services are also provided by commercial banks.
Private banks do not serve the general public. They cater to the needs of wealthy families and corporations. Private banks focus on providing wealth management services for those who have a lot of money.
Commercial banks provide accounts for individuals but most of their services cater to the needs of companies. Commercial banks provide savings and checking accounts as well as credit lines, letters of credit, loans, payment and transaction processing services and foreign currency exchange services. As was noted above, some of these services are also provided by retail banks. However, a commercial bank is able to process large cash payments and multiple credit card payments while most retail banks are not equipped to handle multiple payments of any sort.
Community banks cater to a niche market that is not usually served by other banks. They provide micro loans and other financial services to those who would not otherwise qualify for such services. Community banks operate primarily in poor countries.
Savings and Loans Banks
Savings and loans banks were created to provide mortgage loans to the general public. The money for the mortgage loans come from savings accounts that individuals or companies open with the bank. While savings and loans institutions do not provide a high interest rate on savings accounts, the original deposit is insured by the government. Savings and loans banks are an attractive option for those who are looking for a safe bank to deposit money in.
Savings and loans banks have never been able to provide low interest mortgages, but they do provide longer payment plans than a retail bank. This is one of the main reasons why they have been so successful. While savings and loans banks nearly collapsed in the 80s due to poor investment practices, many savings and loans institutions have recovered from their losses and they are safe financial institutions to invest money in.
Each country has a central bank. In the United States, the FED is the central bank. Individuals and small to medium sized businesses do not work with the central bank. However, large corporations do interact with it from time to time. A country's central bank has several primary jobs. One of its main jobs is to produce the currency used by the country. A central bank will also regulate and supervise financial institutions and provide various financial services.
Investment banks work with companies and organizations that want to get involved in the investment market. Investment banks walk companies through the process of issuing stocks and bonds. Such banks also provide financial advice regarding mergers, acquisitions and other large financial transactions. Large investment banks may have a department that provides the same services as a commercial bank or retail bank. However, investment banks generally cater to the needs of large companies and they will not accept individual deposits.
Credit unions are similar to community banks in that they cater to a niche market. Credit unions serve a particular type of community and provide the services that the community needs. Credit unions are unique in that they place service over profit. Credit unions are run by unpaid volunteers who are required to adhere to a strict code of conduct.
Credit unions provide most of the same services that retail banks do. They provide checking accounts, savings accounts and loans. Other services provided depend on the type of community that the credit union is set up in.
Internet based banks are becoming increasingly popular. Modern technology has made it possible for a person to conduct a wide variety of financial transactions without having to set foot outside the office. Nearly all retail banks and commercial banks provide a number of online banking services. However, there are some online banking services that can only be provided by an online bank.
Many people turn to online banks because they have more competitive rates than brick and mortar banks. As online banks do not have a large overhead, they can afford to provide low interest rates. Online banks have account services. With an online bank account, one can transfer money, pay bills over the internet, obtain a loan, get a credit line and buy CDs. In short, online banks provide many of the same services as retail banks.
There are many types of banks. Each type of bank has its own unique advantages and disadvantages. A person who needs a regular bank account should open an account with a retail bank, online bank or credit union; one can even open an account with more than one type of bank. A company also has various options to consider. The type of bank that would be best for a company depends on the nature of the company and what types of transactions it needs processed. Unless the company is very large or serves an international market, in most instances a commercial bank would be able to provide the services it needs. It is also important to note that exact services provided by a bank vary. For instance, Wells Fargo may or may not provide the same services in the exact same way as Bank of America. One should not only choose the right type of bank but also take the time to choose the particular bank that can best meet its needs.