There are five main types of banking institutions. You’ll want to know these so that you can differentiate between the many banks you hear about, and the banks that would be best fit for you:
- Commercial Banks – Commercial banks are those which offer accounts primarily to businesses. Businesses use commercial banks to store their own money, and borrow money when they need it for their own business. Some commercial banks offer accounts for individuals, but their primary focus is usually on developing more relationships with businesses rather than people.
- Savings Banks – Savings banks, also known as “Savings & Loan” or “S&L” banks were started to serve the retail customer – individuals. Savings banks first began in the 1800s to serve workers and individuals as most commercial banks would only open corporate or business bank accounts. Originally, savings banks were started for the least wealthy of individuals. Today, they service most everyone, and are a mainstay in retail services like savings accounts, checking accounts, car loans and mortgages.
- Credit Unions – Credit unions were originally formed to provide a lending pool to a group of connected people. A church might have created a credit union to provide emergency loans to church members if other banks had turned them down. A labor union might create a credit union to provide emergency lending to other union workers. Today, credit unions have diverged significantly from their original charter to become very much like S&L banks as well as commercial banks.
Banking’s Major Changes
Over time the three major divisions in the financial industry have been broken down. Commercial banks now open personal bank accounts and even offer mortgages and car loans, services previously left to S&L institutions. Credit unions, expanding from their original goals, now offer their own alternative to savings and checking accounts. Credit unions are rapidly accepting commercial customers, as well.
The many changes in the banking industry are almost always a result of technology. New technology allows banks to provide more customer service to more customers.
You can be sure that banking will continue to change over time. In just the last 20 years, credit unions have literally exploded in popularity, as they are now legally allowed to expand beyond well-connected groups. No one would have predicted such an explosion years ago.
But what will not change is the role of a bank in our daily financial lives. A bank is the focal point of finance, a place where we can safely store our savings, borrow to buy a home or car, or even plan for retirement.
Learn more in the next article: Savings Accounts
Photo by: Ferry Vermeer
