You may hear of different types of banks: investment banks, retail banks, commercial banks, online banks, and others. What do all the words mean? Different types of banks specialize in different lines of business. See the basics on each type of bank.
Banks come with a variety of names, and one bank can function as several different types of banks. Some of the most common types of banks are:
·Retail banks
·Commercial banks
·Investment banks
·Central banks
·Credit unions
·Online banks
·Savings and loans
Ø Retail banks.
A retail bank is a bank that works with consumers, otherwise known as 'retail customers'.
Retail banks provide basic banking services to the general public, including:
·Checking and savings accounts
·CDs
·Safe deposit boxes
·Mortgages and second mortgages
·Auto loans
·Unsecured and revolving loans such as credit cards
Retail banks are the banks you most often see in cities on crowded intersections, the ones you probably use for your personal checking account.
In addition to helping consumers, retail banks often serve businesses as well - so they can also serve as commercial banks
Banks come with a variety of names, and one bank can function as several different types of banks. Some of the most common types of banks are:
·Retail banks
·Commercial banks
·Investment banks
·Central banks
·Credit unions
·Online banks
·Savings and loans
Ø Retail banks.
A retail bank is a bank that works with consumers, otherwise known as 'retail customers'.
Retail banks provide basic banking services to the general public, including:
·Checking and savings accounts
·CDs
·Safe deposit boxes
·Mortgages and second mortgages
·Auto loans
·Unsecured and revolving loans such as credit cards
Retail banks are the banks you most often see in cities on crowded intersections, the ones you probably use for your personal checking account.
In addition to helping consumers, retail banks often serve businesses as well - so they can also serve as commercial banks
Ø Commercial banks.
A commercial bank is a bank that works with businesses.
Commercial banks handle banking needs for large and small businesses, including:
·Basic accounts such as savings and checking
·Lending money for real and capital purchases
·Lines of credit
·Letters of credit
·Lockbox services
·Lockbox services
·Payment and transaction processing
·Foreign exchange
Commercial banks often function as retail banks as well, serving individuals along with businesses.
Businesses have unique needs that consumers don’t have. For example, some businesses need a commercial bank that can accommodate a large volume of credit card payments and cash deposits.
·Foreign exchange
Commercial banks often function as retail banks as well, serving individuals along with businesses.
Businesses have unique needs that consumers don’t have. For example, some businesses need a commercial bank that can accommodate a large volume of credit card payments and cash deposits.
Ø Investment bank. 
Investment banks help organizations use investment markets.
For example, when a company wants to raise money by issuing stocks or bonds, an investment bank helps them through the process. Investment banks also consult on mergers and acquisitions, among other things.
Investment banks primarily work in the investment markets and do not take customer deposits. However, some large investment banks also serve as commercial banks or retail banks.
Investment banks help organizations use investment markets.
For example, when a company wants to raise money by issuing stocks or bonds, an investment bank helps them through the process. Investment banks also consult on mergers and acquisitions, among other things.
Investment banks primarily work in the investment markets and do not take customer deposits. However, some large investment banks also serve as commercial banks or retail banks.
Ø Central banks.
A central bank is an organization responsible for managing banking activity. Within the USA the central bank is the Federal Reserve, or 'the Fed'. Other countries have central banks as well. Their roles are similar, but they may have different objectives.
In the US, the central bank has three primary goals:
·Conduct monetary policy
·Supervise and regulate financial firms
·Provide financial services
Most consumers do not interact with the central bank. Instead, large financial firms generally work with the central bank in the background.
For detailed information on the central bank, visit About.com's page on The Federal Reserve System.
A central bank is an organization responsible for managing banking activity. Within the USA the central bank is the Federal Reserve, or 'the Fed'. Other countries have central banks as well. Their roles are similar, but they may have different objectives.In the US, the central bank has three primary goals:
·Conduct monetary policy
·Supervise and regulate financial firms
·Provide financial services
Most consumers do not interact with the central bank. Instead, large financial firms generally work with the central bank in the background.
For detailed information on the central bank, visit About.com's page on The Federal Reserve System.
Ø Credit unions. 
Most people never notice the differences between credit unions and banks. However, as an educated consumer looking to get the best deals (that is you, right?) you should know how the institutions differ. By reading these fast facts about credit unions, you’ll know what to expect.
Who Owns a Credit Union?
A credit union is an institution owned by the “members” or customers. Contrast this with banks where the customers are just customers. Banks answer to profitability – usually shareholders own a bank and expect financial performance from bank management.
Credit unions are nonprofit organizations that strive for service over profitability. Note that I said that credit unions are nonprofits, however they are not charities. Credit unions must make sound financial decisions.
Who Runs a Credit Union?
If all the customers own the credit union, then who has time to run the place? Credit unions actually have the same types of personnel as banks. Upper management consists of a board of directors who makes decisions on credit union operations. This board is composed of elected volunteers. They don’t do it for pay – rather, they’re credit union members who want a say in how the place is run.
Who Can be a Credit Union Member?
So, what does it take to be a member of a credit union? It depends on the credit union. Credit unions simply have to limit their offerings to people who have a common bond. This bond may be the geographic community, a workplace, a religion, or other type of bond.
Credit unions cannot simply offer their services to anybody who has a pulse. Instead, they are limited to working with those who share the common bond. If a credit union fails to limit membership in this way, they risk losing their status as a credit union.
What Products do Credit Unions Offer?
In its simplest form, a credit union gets money from its customers and loans that money out to other customers.
Credit unions will typically offer the same products and services as larger banks. However, some credit unions will choose not to offer every product and service out there. The reason is that these credit unions do not do the same amount of volume that larger banks do. Banks can afford to have “loss-leaders” or products that get customers in the door. Credit unions will more likely only offer the products and services that a large portion of the membership is likely to use.
Remember how we talked about the members owning the credit union? Some credit union products have different names than their banking counterparts. Your deposits are called shares because they represent ownership (like shares of stock) in the institution.
How Competitive are Credit Unions?
Small credit unions give the big banks a run for their money. Because credit unions tend to focus on service over profitability, the rates can be better at a credit union. If you are a rate shopper, you may not find the attractive CD sales as often. However, a long-term relationship with a good credit union can be profitable.
Remember that some credit unions do not offer the whole universe of products and services that larger banks will. This can give the banks an advantage if you happen to want those particular services.
Is Your Money Safe at a Credit Union?
Credit union deposits are insured very much like your bank deposits. The organization that insures the two types of institutions is different. However, the quality of insurance is the same in my mind - backed by the full faith and credit of the US government.
Ø Online banks.
Online banks are banks that you primarily (or exclusively) use on the Internet.
Online banks allow you to have more choice and flexibility. You can do things on a computer, and you often get more competitive rates from online banks. They claim that they do not have the overhead and expenses associated with brick-and-mortar banks, so they can pass the savings on to you.
Online banks allow you to do everything online, including
·Open accounts
·Fund accounts
·Transfer money between accounts
·Use online bill pay services
·Buy CDs
·Get loans
·Access overdraft lines of credit
You can also access your cash in the real world with a debit card.
Ø Savings and loan banks.
Savings and Loans (S&L's) are specialized banks created to promote affordable homeownership. After World War II, the government helped build the Savings and Loans industry by insuring deposits on savings accounts. This encouraged people to save their money, despite federally-regulated low interest rates.
These funds were used by Savings and Loans to lend through 30-year mortgages. Despite higher interest rates, the length of the loans allowed homeowners to afford the monthly payment.
Throughout the 60's and 70's, most homebuyers got their mortgages through Savings and Loans. However, high interest rates in the '70's, and the popularity of money market accounts in the '80's, greatly reduced the attractiveness of savings accounts. This eroded the capital that Savings and Loans needed to create new mortgages.
In response to industry pressure, Congress relaxed restrictions on Savings and Loans' activities, allowing these banks to invest in risky commercial ventures. The collapse of these investments led to the Savings and Loans Crisis of the 1980's.
Examples: Savings and Loans are banks that were created to specialize in home mortgages.
Most people never notice the differences between credit unions and banks. However, as an educated consumer looking to get the best deals (that is you, right?) you should know how the institutions differ. By reading these fast facts about credit unions, you’ll know what to expect.
Who Owns a Credit Union?
A credit union is an institution owned by the “members” or customers. Contrast this with banks where the customers are just customers. Banks answer to profitability – usually shareholders own a bank and expect financial performance from bank management.
Credit unions are nonprofit organizations that strive for service over profitability. Note that I said that credit unions are nonprofits, however they are not charities. Credit unions must make sound financial decisions.
Who Runs a Credit Union?
If all the customers own the credit union, then who has time to run the place? Credit unions actually have the same types of personnel as banks. Upper management consists of a board of directors who makes decisions on credit union operations. This board is composed of elected volunteers. They don’t do it for pay – rather, they’re credit union members who want a say in how the place is run.
Who Can be a Credit Union Member?
So, what does it take to be a member of a credit union? It depends on the credit union. Credit unions simply have to limit their offerings to people who have a common bond. This bond may be the geographic community, a workplace, a religion, or other type of bond.
Credit unions cannot simply offer their services to anybody who has a pulse. Instead, they are limited to working with those who share the common bond. If a credit union fails to limit membership in this way, they risk losing their status as a credit union.
What Products do Credit Unions Offer?
In its simplest form, a credit union gets money from its customers and loans that money out to other customers.
Credit unions will typically offer the same products and services as larger banks. However, some credit unions will choose not to offer every product and service out there. The reason is that these credit unions do not do the same amount of volume that larger banks do. Banks can afford to have “loss-leaders” or products that get customers in the door. Credit unions will more likely only offer the products and services that a large portion of the membership is likely to use.
Remember how we talked about the members owning the credit union? Some credit union products have different names than their banking counterparts. Your deposits are called shares because they represent ownership (like shares of stock) in the institution.
How Competitive are Credit Unions?
Small credit unions give the big banks a run for their money. Because credit unions tend to focus on service over profitability, the rates can be better at a credit union. If you are a rate shopper, you may not find the attractive CD sales as often. However, a long-term relationship with a good credit union can be profitable.
Remember that some credit unions do not offer the whole universe of products and services that larger banks will. This can give the banks an advantage if you happen to want those particular services.
Is Your Money Safe at a Credit Union?
Credit union deposits are insured very much like your bank deposits. The organization that insures the two types of institutions is different. However, the quality of insurance is the same in my mind - backed by the full faith and credit of the US government.
Ø Online banks.
Online banks are banks that you primarily (or exclusively) use on the Internet.
Online banks allow you to have more choice and flexibility. You can do things on a computer, and you often get more competitive rates from online banks. They claim that they do not have the overhead and expenses associated with brick-and-mortar banks, so they can pass the savings on to you.
Online banks allow you to do everything online, including
·Open accounts
·Fund accounts
·Transfer money between accounts
·Use online bill pay services
·Buy CDs
·Get loans
·Access overdraft lines of credit
You can also access your cash in the real world with a debit card.
Ø Savings and loan banks.
Savings and Loans (S&L's) are specialized banks created to promote affordable homeownership. After World War II, the government helped build the Savings and Loans industry by insuring deposits on savings accounts. This encouraged people to save their money, despite federally-regulated low interest rates.
These funds were used by Savings and Loans to lend through 30-year mortgages. Despite higher interest rates, the length of the loans allowed homeowners to afford the monthly payment.
Throughout the 60's and 70's, most homebuyers got their mortgages through Savings and Loans. However, high interest rates in the '70's, and the popularity of money market accounts in the '80's, greatly reduced the attractiveness of savings accounts. This eroded the capital that Savings and Loans needed to create new mortgages.
In response to industry pressure, Congress relaxed restrictions on Savings and Loans' activities, allowing these banks to invest in risky commercial ventures. The collapse of these investments led to the Savings and Loans Crisis of the 1980's.
Examples: Savings and Loans are banks that were created to specialize in home mortgages.
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