Commercial banks are where most people keep their checking and savings accounts

Commercial banks are the everyday banks you see on the street corner or online. They take deposits from customers, lend money to businesses and individuals, and offer checking accounts, savings accounts, and credit cards. When you deposit a paycheck or withdraw cash from an ATM, you're using a commercial bank.

These banks make money by charging fees on accounts, collecting interest on loans they make, and investing the money you deposit. They're regulated by federal agencies like the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (FDIC), which insures your deposits up to $250,000 per account type.

Most commercial banks are for-profit institutions owned by shareholders. Some are large national chains like Bank of America or Wells Fargo; others are smaller regional or community banks that serve a specific area.

Key Takeaways

  • Commercial banks offer checking and savings accounts to regular customers and are insured by the FDIC.
  • Credit unions are member-owned cooperatives that often charge lower fees and offer better rates than commercial banks.
  • Savings banks focus on helping customers save money and traditionally offer higher interest rates on savings accounts.
  • Investment banks help large companies and wealthy individuals buy and sell securities, and do not take deposits from the public.
  • Online banks operate without physical branches and typically charge fewer fees because they have lower overhead costs.

Credit unions are member-owned and often offer better rates and lower fees

Credit unions are nonprofit financial institutions owned by their members—the people who bank there. Instead of making profits for shareholders, credit unions return earnings to members through lower fees, higher interest rates on savings, and lower rates on loans. You must be a member to open an account, and membership is usually based on where you work, where you live, or a group you belong to.

Credit unions are smaller than most commercial banks and serve specific communities or groups. For example, a credit union might serve all employees of a particular company, or all residents of a county. Because they're smaller and member-focused, they often have more flexible lending standards and better customer service than large commercial banks.

Credit unions are insured by the National Credit Union Administration (NCUA), which works the same way as the FDIC—your deposits are protected up to $250,000. If you're comparing a credit union to a commercial bank, the main trade-off is that credit unions have fewer branches and ATMs, though many now partner with other credit unions to expand access.

Savings banks prioritize helping customers build savings accounts

Savings banks (also called thrift institutions or savings and loan associations) were originally created to help working people save money and buy homes. They focus on savings accounts and mortgages rather than the full range of services a commercial bank offers. Today, many savings banks operate much like commercial banks, but they still emphasize savings products and home lending.

Savings banks traditionally offer higher interest rates on savings accounts than commercial banks do, because lending money for mortgages is their main business. They use deposits to fund home loans, so they benefit when customers save more. Like commercial banks, savings banks are FDIC-insured and regulated by federal agencies.

Some savings banks are still independent, while others have merged with or been acquired by larger commercial banks. If you see a bank with "Savings" or "Savings and Loan" in the name, it's likely a savings bank, though the distinction matters less today than it did decades ago.

Investment banks help large companies and wealthy clients buy and sell securities

Investment banks do not take deposits from regular customers and do not offer checking or savings accounts. Instead, they help large corporations, governments, and wealthy individuals buy and sell stocks, bonds, and other securities. They also advise on mergers and acquisitions, underwrite new stock offerings, and manage investment portfolios for institutional clients.

Investment banks make money through fees and commissions on these transactions, not through deposits and loans. Because they don't hold customer deposits, they're not insured by the FDIC and are regulated differently than commercial banks. Some investment banks are standalone firms like Goldman Sachs or Morgan Stanley; others are divisions of larger commercial banks.

You won't use an investment bank for your everyday banking needs. However, if you have a brokerage account or retirement account, the firm managing it may be an investment bank or a division of one. Investment banks are important to the financial system because they help companies raise money and help investors buy and sell securities.

Online banks operate without physical branches and charge lower fees

Online banks exist only on the internet—they have no physical branches or ATMs of their own. Because they don't pay for buildings, staff, or ATM networks, they can charge lower fees and offer higher interest rates on savings accounts than traditional banks. Examples include Ally Bank, Charles Schwab Bank, and Marcus by Goldman Sachs.

Online banks offer the same basic services as commercial banks: checking accounts, savings accounts, debit cards, and sometimes loans. You manage your account through a website or mobile app, deposit checks by taking a photo, and withdraw cash at ATMs in partner networks. Most online banks are FDIC-insured, so your money is protected the same way it is at a brick-and-mortar bank.

The main drawback is that you can't walk into a branch to talk to someone in person. If you need help, you contact the bank by phone, email, or chat. For people who are comfortable managing money online and don't need face-to-face service, online banks often offer the best rates and lowest fees.

How to choose which type of bank fits your needs

The type of bank you choose depends on what services you need and how you prefer to bank. If you want a full range of services, physical branches, and don't mind paying higher fees, a commercial bank works well. If you want lower fees and better rates and can meet membership requirements, a credit union is often the better choice.

If you're comfortable banking online and want the lowest fees and highest savings rates, an online bank may save you money. Savings banks make sense if you're focused on building savings or getting a mortgage. Investment banks are only relevant if you're managing large amounts of money or running a business that needs securities services.

Many people use more than one type of bank. For example, you might keep your checking account at a commercial bank for convenience, a savings account at an online bank for better interest rates, and a credit union account for a low-rate loan. The key is understanding what each type offers so you can match your banking needs to the right institution.

Frequently Asked Questions

What's the difference between a bank and a credit union?

Banks are for-profit businesses owned by shareholders; credit unions are nonprofit cooperatives owned by members. Credit unions typically charge lower fees and offer better rates because they return profits to members instead of shareholders. Credit unions are smaller and may have fewer branches, but members often get more personalized service.

Is my money safe at an online bank?

Yes, if the online bank is FDIC-insured. Check the bank's website or the FDIC's bank search tool to confirm. FDIC insurance protects your deposits up to $250,000 per account type, whether the bank has physical branches or not. Online banks are regulated the same way as traditional banks.

Can I use an investment bank for my everyday banking?

No. Investment banks do not offer checking or savings accounts to regular customers. If you want to invest in stocks or bonds, you use a brokerage firm or the investment division of a commercial bank. For everyday banking, use a commercial bank, credit union, savings bank, or online bank.

Do all banks charge the same fees?

No. Fees vary widely by bank type and institution. Online banks and credit unions typically charge the lowest fees; commercial banks often charge more. Compare monthly maintenance fees, overdraft fees, ATM fees, and minimum balance requirements before opening an account.

What if I want both low fees and a physical branch?

Look for a community bank or regional credit union in your area. These institutions are smaller than national chains, often charge lower fees, and have physical locations where you can speak to someone. You can also use a commercial bank but compare their fees to online banks and credit unions to make sure you're not overpaying.