From California to Connecticut, hundreds of millions of Americans depend on banks. People keep money in checking and savings accounts at banks, use bank-issued debit or credit cards and take out loans for homes and cars. Banks sit at the core of our financial lives.
A bank is a government-regulated business whose main purpose is to act as an intermediary between people with capital and those who want to borrow it. As of 2021, more than 4,200 banks insured by the Federal Deposit Insurance Corp. (FDIC) operated in the U.S. These banks held deposits exceeding $18.4 trillion.
Although there are several kinds of banks, most people deal with retail banks, which do business primarily with consumers and small businesses.
Based on their total assets as of Sept. 30, 2022, the largest banks in the U.S. are:
- JPMorgan Chase
- Bank of America
- Citibank
- Wells Fargo
- U.S. Bank
- PNC
- Truist
- Goldman Sachs
- TD Bank
- Capital One
How banks operate
Banks, which are for-profit businesses, use the money that you deposit to lend to customers. They turn a profit by charging borrowers higher interest than they dole out to savers.
“Banks act as go-betweens for people who save and people who want to borrow,” per the Federal Reserve Bank of Boston. “If savers didn’t put their money in banks, the banks would have little or no money to lend.”
Federally regulated banks must hold onto at least 10% of each deposit made and can tap into the remaining 90% for loans. Banks are federally regulated, state regulated or both.
Banks also make money on the securities that they own, such as government bonds, and on fees that they charge. These fees can include monthly account maintenance fees, overdraft fees and lending fees.
How banking works
When you think of banking, a brick-and-mortar location may come to mind. But banking has evolved in the digital age. In general terms, banking refers to traditional banks, online-only banks, savings associations and credit unions, among other financial institutions.
Many of these institutions operate physical branches. Over the years, the number of bank branches has steadily declined as the popularity of online banking and banking apps has grown.
For instance, FDIC-insured banks operated more than 72,000 branches across the country in 2021. Compare this to the 85,000 branches in operation in 2011.
The number of banks also has decreased, in many cases because one bank has merged with another.
Products and services offered by banks
Among the products and services provided by banks are:
- Checking accounts.
- Savings accounts.
- Certificates of deposit (CDs).
- Money market accounts.
- Check cashing.
- Online bill payment.
- Debit cards.
- Credit cards.
- Mortgages.
- Home equity loans.
- Auto loans.
- Insurance.
- Financial and retirement planning.
- Investments like stocks and mutual funds.
Types of banks
Although many financial institutions offer a lot of the same products and services, they aren’t necessarily set up in the same way. Among the types of banks you’ll come across are:
- Retail banks. These banks target consumers and small businesses.
- Commercial banks. These banks serve big and small businesses.
- Savings banks. These state-chartered or federally chartered banks accept deposits from savers and pay interest on those deposits.
- Savings and loan associations (S&Ls). S&Ls accept deposits and allocate much of that money for residential mortgages.
- Cooperative banks. These customer-owned banks serve both members and non-members.
- Credit unions. Nonprofit, member-owned credit unions offer many of the same products and services as retail banks do.
Bank vs. credit union
Banks and credit unions are alike in many ways. For example, they allow people to deposit money into checking and savings accounts, and they offer auto loans and mortgages. However, banks and credit unions don’t operate the same way.
As a for-profit business, a bank typically turns over at least some of its profits to the shareholders, or investors, who own the bank. Shares of a bank’s stock are either privately held or publicly traded. Banks generally operate more branches and ATMs, and also offer more products and services, than credit unions do.
By contrast, a nonprofit credit union returns profits to its members — the customers who own the credit union and use its services — in the form of lower fees, reduced loan rates and higher savings rates. Credit union members often share a common bond, such an employer or a geographic location.
Deposits at banks insured by the FDIC and credit unions insured by the National Credit Union Administration (NCUA) are covered up to a certain dollar amount.
Is my money safe at a bank?
Most bank deposits are FDIC-insured. This coverage includes checking accounts, savings accounts, money market accounts and CDs. If your account is covered, the insurance is up to $250,000 per depositor, per FDIC-insured bank and per ownership category.
Meanwhile, most deposits at credit unions are NCUA-insured. Among the accounts that fall under this coverage are checking accounts (called share draft accounts), savings accounts, money market accounts and share certificates (similar to CDs), Credit union deposits normally are covered up to $250,000 per depositor, per NCUA-insured credit union and per account ownership category.
Which type of bank is best for me?
The type of bank that’s best for you depends on your needs.
If you do a lot of banking online, for instance, you might be comfortable doing business with an online-only bank. But if you want access to physical locations, then you’re probably better off going with a traditional bank.
Also, are you okay banking with a huge corporation? Or would you rather do business with a smaller local or regional bank?
And how important is the amount of interest you earn on your savings? If interest is a key consideration, then the best option might be an online-only bank. Online-only banks tend to offer higher interest rates on deposits than traditional banks do.
What to consider when choosing a bank
Questions you might ask when considering which bank to choose include:
- Are the interest rates for checking accounts, savings accounts, CDs and money market accounts competitive?
- Does the bank offer loans, such as mortgages and auto loans, at attractive interest rates?
- Does the bank have branches in case you need to carry out an in-person transaction?
- Will your deposits be insured?
- What is the bank’s customer service like?
- What is the bank’s reputation? For instance, does it engage in charitable activities in your community?
- Does the bank offer a mobile app?
- Is online bill pay an option?
- Can I cash checks online?
- Does the bank have a large network of ATMs?
- What types of fees does the bank charge? For example, does it assess a monthly maintenance fee for checking accounts?
- Are debit cards and credit cards available?
Frequently asked questions
The main purpose of a bank is to accept deposits, then pool that money and lend it to customers.
Traditional banks are for-profit businesses whose profits typically go to their shareholders. On the other hand, credit unions are nonprofit financial institutions whose profits go to their members — the customers who are also part owners.
The different types of banks include:
- Retail banks, which are for-profit, investor-owned financial institutions that cater to consumers and small businesses.
- Commercial banks, which are for-profit, investor-owned financial institutions that serve big and small businesses.
- Savings and loan associations, which specialize in savings accounts and mortgages.
- Savings banks, which focuses on interest-bearing savings accounts.
- Credit unions, which are nonprofit financial institutions owned by their members.
