A bank is a financial institution that accepts deposits from the public. In other words, banks secure money through a savings or checking account. However, several types of banks serve different purposes.
Each type of bank performs a specific function. It might sound new to you, but it is important to know each type to get a better understanding of how a bank works.
Commercial Banks
Commercial banks are the ones that accept money through deposits from the public. Loans are also available with corresponding interests. Generally, this type of bank lends money for a short period only.
If you’re a traveler, having an account on commercial banks can be handy for you. With the foreign exchange services it has, you can exchange currency easily. You can compare the best banks available to get the best services for you.
Aside from the general banking services available, some commercial banks offer tailored services that fit your business needs. It includes rent, insurance payment, or payroll systems.
Central Bank
Every country has a central bank. Its primary goal is to mobilize the monetary and credit system of the country. One of its primary goals is to regulate the activities of commercial banks and other financial institutions in the country.
Central banks also oversee federal payment systems and stabilize the financial markets. These types of banks are considered as the apex of the constitution of the country’s money market.
Retail Banks
This type of bank is the one you’re most probably familiar with. Retail banks offer services such as checking accounts, savings accounts, credit cards, mortgages, and loans to customers. Examples of retail banks are national banks and local banks.
National banks offer various services ranging from business loans to extensive ATM services. Accounts for individuals and businesses are available to host different types of transactions.
Apart from national banks, there are also local banks. These local banks focus on the needs of the local community. Usually, local banks have fewer assets than national banks. But these banks extend loans to small businesses in the community that might not be qualified for larger banks.
Credit Unions
Credit unions are quite similar to retail banks. What makes it different is credit unions are for non-profit organizations.
This type of bank is not open to everyone. But if you wish to open an account, you need to become a member through an employer or organization that sponsors their credit union.
Usually, credit unions offer bank services such as checking and savings accounts, credit cards, and loans. As a customer and owner at the same time, members can take the money earned and use it to provide a higher interest rate for a savings account and lower interest rate on loans.
Private Banks
Just like any other bank, private banks offer a different selection of financial products and services. What makes it different is the audience it serves.
Traditionally, private banks are owned by a wealthy individual or a group of wealthy individuals who provide financial advice to high earners. To qualify as a customer, you must have a minimum balance of assets.
One of the advantages of private banks is having exclusive connections to individuals who understand your financial state.
Take into note that private banks offer low-interest rates accounts but can be changed if the bank decides to leave the industry.
Not all banks serve the same purpose or the same audience. Many types of banks contribute to the market differently. Once you get to know each one, you’ll be able to determine which one fits your needs.