If you want to learn more about the banking industry, it’s essential to know the different types of banks. Commercial banks are among the most common types of banks. There are about 4,519 FDIC-insured (Federal Deposit Insurance Corporation) commercial banks in the U.S.
But, they don’t all function the same. To learn more, this is everything you need to know about the different types of commercial banks.
What Is a Commercial Bank?
Commercial banks are financial institutions that provide customers with personal checking accounts, savings accounts, and grant loans. The customers can include individuals as well as corporations.
As the name implies, commercial banks are profit-making corporations that earn money based on interest rates from borrowers.
In the banking industry, it’s also important to understand a commercial vs investment bank.
Investment banks are more involved in large and complex financial interactions and may advise clients on investing their money. Commercial banks aren’t involved in these interactions and serve customers in a more hands-off manner.
Functions of Commercial Banks
The primary commercial bank function is to accept deposits from the general public. Specifically, they accept deposits from the public when the customer is willing to deposit surplus funds to earn interest.
Another commercial bank function is to lend money to companies and individuals through loans.
Some commercial banks will also perform utility functions like safekeeping valuables, mobile banking, transferring funds, and creating credit.
Commercial banks may also advance foreign trade and serve several miscellaneous functions for customers.
One type of commercial bank is a public bank. A public bank is a commercial bank where the government holds over 51% of the share capital of a public company.
Thousands of commercial banks fall into this category.
Private commercial banks are the opposite of public, commercial banks. When private citizens own 51% of the share capital, then the bank is noted as private.
Though these banks are labeled private, the banks can still be listed as a public company in a recognized exchange.
Foreign banks represent any commercial bank that operates outside of their home country. According to the U.S. Federal Reserve, there are around 140 commercial foreign banks in the United States.
Now You Know the Different Types of Commercial Banks
This is a brief breakdown of all the different types of commercial banks. Though many types of banks fall under this category, they all function slightly differently. To figure out the best local bank for you, it’s critical to understand these differences and know where to put your money.
When it comes to making important financial decisions, you should always take your time and do your research. It’s always better to be safe than sorry!
And for more help with finances, be sure to check out the rest of our blog. We have a bunch of other awesome articles on personal finance that you’re sure to love!