Types of Banks: Which Is Right for Your Needs?

There are many different types of banks, all of which have different target customers and perform different functions. But what exactly are the differences?

Jacquelyn White Mar 6, 2023

Though they dictate a large portion of our financial lives, many people don't know the difference between the many different types of banks. Discover what each bank does and how you can choose the right one for your needs.

What Is a Bank?

It may seem simple, but it's a question people don't ask enough. Banks play a huge role in our lives, so it's important to fully understand what they are. At a high level, banks are financial institutions that are certified to receive deposits of money and provide loans that allow people to borrow money. However, many banks offer other services as well, including financial advising and currency exchange services.

Some banks only serve a specific set of people, while many others serve the general public. Other types of banks, such as a central bank, serve as regulatory bodies for national governments.

Types of Banks

There are many different types of banks in the world and each serves its own special purpose. Knowing the kinds of banks at your disposal is important for making financial decisions, whether you are hoping to open a savings account or take out a loan:

Retail Banks

The majority of people are most familiar with retail banks, as they are aimed primarily at consumers. Typically, consumers will use their local branch for everyday banking and other financial services. These local branches connect to a larger bank that services commercial customers.

Aside from having basic banking services, retail banks usually provide financial advice and can offer personal loans and mortgages. Unlike commercial banks, retail banks only service consumers and do not provide loans for large businesses or corporations.

Commercial Banks

Commercial banks primarily serve individuals and small businesses. Typically, they will offer similar services as a retail bank: The ability to open checking and savings accounts, provide small business loans, and offer other financial products. These types of banks are able to provide loans using all of the deposits funneled into individual accounts.

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