What Type of Bank Do I Need?

Banks and bank accounts come in many variations.

If you’re like many Americans, your first bank account might be at a savings bank. As you grow older, the types of bank accounts you’ll need will likely change. At some point, you’ll want a checking account so you can pay bills. As you earn more money, you might want to invest in stocks and bonds. And when you buy a house or car, you’ll probably need to take out a loan.

With so many competitive products available, you might find that having different accounts at different institutions serves your needs best. Here’s a list of different types of banks and the various services they offer. Understand their differences so you can choose the best bank for your needs.

Commercial Banks

A commercial bank, as the name implies, exists to promote commerce. In real-world terms, a commercial bank’s primary function is to extend loans to businesses. Like all banking institutions, commercial banks accept deposits and use that money to fund loans. And although anyone can deposit money at a commercial bank, you’ll likely use one for business banking.

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In addition to general banking services, commercial banks offer services tailored to business needs, like rent and insurance payments. The Federal Reserve Bank, the nation’s central bank, regulates commercial banks. If you don’t need commercial services, you might prefer a national or local bank.

National Banks

National banks are well-known financial institutions, such as Bank of America or Chase Bank, with branches across the U.S. and beyond. National banks offer a host of services for both individual and corporate clients, ranging from business loans to extensive ATM networks.

You can typically get any type of retail banking services you want at a national bank — but they might come with fees. For example, Chase charges a $12 monthly service fee for a simple checking account, although you can avoid paying it if you set up direct deposit or maintain a balance of $1,500 or more.

Check Out: 10 Best National Banks of 2017

Local Banks

Local banks focus on developing the needs of a specific community and typically have less than $1 billion in assets. Local banks are particularly important when it comes to financing small businesses and farmers.

Because local banks support the community — and are aware of the local business environment — they can often extend loans to community businesses or individuals that might have a harder time qualifying at a larger bank. If you want the personalized service that comes with a community bank — or if you have a business and can’t get a loan at a national institution — consider a local bank.

Online Banks

Online banks are best for savers who want the highest interest rates. Without physical branches to build and service, online banks can often afford to pay higher rates than brick-and-mortar banks.

As of Aug. 17, 2017, for example, the national average interest rate for savings accounts was 0.06 percent, according to the FDIC, but online banks like CIT Bank paid as much as 1.25% APY. Online banking also offers a host of convenient online services; such as bill pay and money transfer capabilities.

Some online institutions, like Ally Bank, offer 24/7 telephone access to a live customer service representative. In addition to the inconvenience of not having branches, however, online banks can prove difficult when you want to make deposits, particularly if it’s a cash deposit. Consider your service needs and whether the high interest that comes with digital banking makes it worthwhile for you.

Related: 10 Best Online Banks of 2017

Investment Banks

Most consumers won’t need the services of an investment bank, which assist with businesses’ capital transactions. The best investment banks provide advice on and facilitate debt and equity offerings, tender offers, financial restructurings, mergers and acquisitions, divestitures and corporate reorganizations, among other services.

Generally, only larger organizations, like publicly traded companies, need to conduct types of investment banking transactions. If this doesn’t apply to you, stick with a consumer bank.

Pick a Bank

Because banks exist in a competitive marketplace, you can find many different service options for your banking needs. Compare and contrast the features and benefits of these various types of banks to see which bank is a good fit. And, if you require a variety of services, consider opening accounts at multiple financial institutions including banks and credit unions.

Up Next: What Is the Difference Between Banks and Credit Unions?

Editorial Note: This content is not provided or commissioned by the bank advertiser. Opinions expressed here are author’s alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.