Types Of Banks And Financial Services
Many types of banks offer many types of Financial Services. Anyway, most people don’t know the differences between the banks. They think all the banks offer the same services such as savings and current account. Did you know that different types of banks offer different services? OK, before talking about the bank types, let’s discuss Financial Services.
I scanned the Wikipedia page about Financial Services and came with a definition. Finance industry consists of many institutions that offer Financial Services. “Financial services companies are present in all economically developed geographic locations and tend to cluster in local, national, regional and international financial centers such as London, New York City, and Tokyo.” That’s what the Wikipedia says about the distribution of finance industry in a country.
OK, now let’s come to the banks. Two types of banks are there (commercial and investment.)
Commercial Banks: These are the banks that host personal accounts. People open personal accounts in commercial banks for short-term and long-term uses. So, how do the banks make money then? It’s like a cycle. People deposit money in a bank in large quantities. Customers deposit money today, but they don’t withdraw the money tomorrow. The banks pay an interest rate to customers for deposited money. And the banks make money by lending that money at a higher rate to consumers. Charge on individual accounts is another income of the banks. Anyway, the banks can’t charge interest from customers without a limit. They should charge the customers depending on the interest rates set by the government or the central bank.
Consumer Banks/credit unions: Savings banks and credit unions fall under this category. They offer Financial Services aiming a specific industry or group. These banks support the customers in many ways. Credit unions offer many services that a commercial bank does such as mortgages, checking accounts, other loans, and savings accounts. Also, they offer credit card services. Private banks, on the other hand; provide Financial Services to a specific group such as high net worth individuals. Anyway, to obtain the services of a private bank; you have to prove your net worth (there’s a minimum limit.) Tax planning, estate planning, and philanthropic gift planning are the Financial Services offered by private banks.
Investment Banks: These banks raise capital for business. They work with businesses for selling bonds. In other words, they act as the “middleman” that facilitates the transaction. Current interest rates and company’s credit rating are the facts the investment banks consider when pricing the debt. Which means a company with higher credit ratings has to pay less to sell bonds and vice versa. By arranging equity issues, investment banks raise capital for the client company. The banks make money by the fees from clients for raising capital.
Other Financial Services from banks: Electronic and wire transfer of funds. Various types of loans such as overdraft, housing loans, vehicle loans, and much more.
Some final words: Many types of banks offer different Financial Services. Some banks offer services to a specific group of customers. Banks make money by lending the money at higher interest rates. To get the services from a private bank, you have to prove your net worth, and limitations are there. Hope you found this article helpful, and let’s meet again with another article on Financial Services.