Financial Planning Terms Explained: The difference between Retail Banks, Commercial Banks, Investment Banks, and Credit Unions
There seems to be a bank or ATM popping up on every street—they’re more ubiquitous than Starbucks! From Main Street to Wall Street to the big-name bank to your local credit union, you have a myriad of banking options and entities to choose from. Assuming you don’t store you cash under your mattress, you’re likely already using some sort of banking entity to help you manage your finances. It’s important to know the different types of banking options—understanding the often consuming jargon and financial planning terms and definitions is the first step. Accordingly, here’s some need-to-know financial planning/banking terms:
A retail bank can generally be defined as a bank that helps individual consumers with their everyday banking needs and transactions such as withdrawing money from a checking or savings account or depositing a check. Retail banks, also known as consumer banks since they help the everyday consumer with their individual consumer banking needs, may offer a variety of consumer banking financial services and products such as but not limited to: checking accounts, saving accounts, debit cards, credits cards, personal loans, and home mortgages. Keep in mind that not every retail bank has a physical, brick-and-mortar location you can visit; in fact, in today’s digital era, there are some retail bank companies that operate through exclusively online-only banks. Retail banks are typically part of a larger commercial bank—the retail bank division of the commercial bank is simply the division that individual consumers typically deal with for banking needs.
A commercial bank typically has its retail bank division for dealing with individual consumer’s banking needs as well as a commercial division that offers banking services to businesses (i.e., offering checking, savings, and deposit accounts as well as giving out loans to businesses). Commercial banks earn money by using the money deposited from its client and then lending that money with interest to other individuals or businesses. In other words, small, more liquid deposits are transformed into interest-earning, longer-term maturity loans.
Some commercial banks also have an investment banking division. An investment bank typically specializes in financial services and products for much larger investors and corporate clients, such as providing investment advice on securities trades or mergers and acquisitions.
A credit union is very similar to a retail bank in terms of the banking services and products it offers to its customers. The biggest difference between a credit union and a retail bank is that a credit union is a not-for-profit, financial institution. Credit unions are also member-owned, cooperative financial institutions, meaning they are owned and operated by its members as opposed to a commercial bank owned by its shareholders. Want to learn more about the pros and cons of using a credit union vs. a retail/commercial bank? Stay tuned for the next Summit blog on this topic.
A financial advisor can help you select the banking option that best fits your needs. When it comes to financial planning, you have so many crucial decisions to make. Choosing an appropriate bank is just one in a sea of many financial planningdecisions you’ll need to make. Going at it alone may ultimately cost you. Alternatively, working with a seasoned financial advisory professional will offer you peace of mind and expert guidance for your financial future. Summit Brokerage Services has been voted the #1 boutique independent broker dealer in the country. Let us show you why! To experience the Summit difference and learn more about our network of independent financial advisors, visit https://www.summitbrokerage.com or call us at (800) 354-5528.
About Summit Brokerage Services, Inc.
Summit Brokerage Services is part of Cetera Financial Group. Summit Brokerage provides a broad range of securities brokerage and investment services to primarily individual investors. Summit Brokerage also sells insurance products, predominantly fixed and variable annuities and life insurance through its subsidiary, SBS Insurance Agency of Florida. Summit Brokerage also provides asset management services through its investment advisor, Summit Financial Group, Inc.
About Cetera Financial Group
Cetera Financial Group® (“Cetera”) is a leading network of independent retail broker-dealers empowering the delivery of objective financial planning advice to individuals, families and company retirement plans across the country through trusted financial advisors and financial institutions. Cetera is the second-largest independent financial advisor network in the nation by number of advisors, as well as a leading provider of retail services to the investment programs of banks and credit unions.
Through its multiple distinct firms, Cetera offers independent and institutions-based advisors the benefits of a large, established broker-dealer and registered investment adviser, while serving advisors and institutions in a way that is customized to their needs and aspirations. Advisor support resources offered through Cetera include award-winning wealth management and financial planning and advisory platforms, comprehensive broker-dealer and registered investment adviser services, practice management support and innovative technology. For more information, visit www.ceterafinancialgroup.com.
*”Cetera Financial Group” refers to the network of retail independent broker-dealers encompassing, among others, Cetera Advisors, Cetera Advisor Networks, Cetera Financial Institutions, Cetera Financial Specialists, First Allied Securities, Girard Securities, The Legend Group and Summit Brokerage Services.