Learn something new every day
More Info... by email
Commercial banks play an important role in an economic society; in many ways, they represent intermediaries that move money through the market. Different types of commercial banks may exist, with each type offering different services. One underlying similarity with these banks is their inability to underwrite loans and create agreements that issue securities to investors. The most common types of commercial banks include checking, deposit, and savings banks, with many of these activities offered at a single institution. These banks also engage in business banking and loans.
The most basic types of commercial banks are those that only offer checking and deposit services. Checking accounts allow consumers to place money into a holding account and draw on it at a later time. The longer a customer leaves money in the bank, the greater opportunities the financial institution has to invest the money. Banks do not ever hold all a consumer’s money in its entirety in the bank vault. Instead, it lends the money out in loans or purchases securities at the bank level in order to make money, so the institution can remain solvent.
Banks that engage in basic services may also offer savings accounts in addition to checking accounts. These accounts are very similar to checking accounts, though many types of savings accounts offer small interest percentages that reward consumers for placing money into the bank. These commercial banks use interest payments to induce more consumers to open accounts at the bank. With more accounts, more money flows into the bank, and more loans made to other parties are often the end result. Money market savings accounts may also be options at these basic commercial banks.
The next level of commercial banks are those that make loans directly to consumers or those who use bank services. Rather than making loans to other parties or those not affiliated with the bank, loans to bank customers allow the financial institution yet another revenue stream. The interest charged on the loan goes back to the bank’s coffers and allows it to grow and expand into other markets. These types of commercial banks may be most common with business customers, who look not only for basic banking service but also the ability to obtain loans from reasonable sources. These types of commercial banks can also offer letters of credit, performance bonds, or other commitments for business use in a market.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!