What Is a Commercial Bank?

What is a commercial bank?

A commercial bank is a for-profit financial institution that’s legally allowed to accept deposits and provide loans. It serves consumers and small- to medium-size businesses, though some also offer services for large corporations. A commercial bank is usually what you’re thinking of when you picture a regular bank for day-to-day needs. Commercial banks can offer a range of financial products and services including deposit accounts and loans.

There are nearly 4,000 commercial banks in the U.S.; they make up the vast majority of banks in the country.

What do commercial banks offer?

A commercial bank can provide checking and savings accounts, debit cards and certificates of deposit. It may also provide credit cards and other loans such as mortgages, personal loans, auto loans and small business loans, among others. Some commercial banks have separate business units that offer investment services.

Who needs a commercial bank?

Commercial banks are useful to most of us: Consumers and businesses who want to keep their money safe in bank accounts and borrow funds through mortgages and business loans. By offering a full range of products and services, a bank can make itself more appealing to customers who prefer to handle all their banking needs at the same institution.

» See our guide: How to choose a bank

What’s an example of a commercial bank?

A commercial bank can be a national, regional, community or online institution. Chase and Bank of America are examples of large commercial banks with national charters. But commercial banks can be smaller, with either national or state charters. KeyBank and City National Bank are smaller commercial banks, for example.

Traditionally, big commercial banks offer many branches (such as with Chase, Wells Fargo, or most of the very largest banks in the U.S., which offer hundreds or thousands of locations). But online-only commercial banks such as Ally Bank® (Member FDIC) and SoFi® have also become popular. To better compete, many traditional commercial banks also provide robust online banking services on websites and mobile apps.

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Commercial banks vs. other financial institutions: What’s the difference?

There are several types of banks. Here’s how commercial banks compare to other kinds of financial institutions.

Commercial bank vs. credit union: A commercial bank is a business, and if it's publicly traded, has obligations to make profits for its shareholders. In contrast, a credit union is a not-for-profit organization that is owned and controlled by its members. Both provide comparable accounts and loans to consumers. Some credit unions require that you live in a certain region or work for a particular company in order for you to be eligible for membership.

Commercial bank vs. retail bank: A commercial bank can serve both individuals and businesses; a retail bank (or “consumer bank” or “personal bank”) is one that serves only individual customers. Somewhat confusingly, banks sometimes refer to the part of their operations that serves business customers as “commercial banking” and the part focused on individual customers as “retail banking.”

Commercial bank vs. savings bank: A commercial bank generally offers many types of accounts and loans for various businesses, whereas a savings bank typically specializes in real estate loans. A savings bank can be owned by shareholders or by its borrowers and depositors (as a mutual savings bank). Other names for a savings bank include a savings and loan association and a thrift institution.

Commercial bank vs. investment bank: While a commercial bank primarily serves consumers and smaller businesses, an investment bank caters to larger corporations and governments, providing services for mergers and acquisitions, and raising capital. Some commercial banks also offer investment services through separate business units.

Commercial bank vs. corporate bank: Corporate banks serve corporate customers and large companies, providing financing and assisting with mergers and acquisitions, among other services. Some banks operate as both commercial and corporate banks, serving individuals, smaller businesses and large corporations.

Commercial bank vs. central bank: A central bank is a bankers’ bank. This type of bank performs key operations to support a country’s financial system, including controlling the money supply and setting monetary policy. In the U.S., the central bank is the Federal Reserve.

» Take a deeper dive: What is a bank?

How do commercial banks earn money?

Banks generally earn money from collecting interest on loans, such as a mortgage or personal loan. They’re able to lend money out by borrowing from the funds that customers deposit with them. A commercial bank can also earn money from charging customers bank fees, including ATM fees, monthly service fees, late fees, overdraft fees and more.

Are commercial banks safe?