Banking is how your paycheck gets deposited, how you pay bills, and how your money stays safe. It’s the system behind your checking account, your credit card, your mortgage—and almost every financial decision you make.
Whether you’re saving for the future or borrowing to build a business, banking helps you manage, move, and grow your money. It’s not just a convenience—it’s the foundation of your financial life.
In this guide, we’ll break down how banking works, what types of banks exist, the most common products and services, and how to choose the right bank for your needs.
Key Takeaways
- Banking protects and manages money, offering storage and loans to people, businesses, and governments while fueling the U.S. economy.
- Different types of banks serve different needs, including retail banks, savings and loan associations, commercial banks, investment banks, online banks, and credit unions.
- Most banks offer checking and savings accounts, certificates of deposit, loans, debit and credit cards, and money market accounts to help you manage and grow your money.
How the Banking System Works Behind the Scenes
At its core, banking provides a secure place to store money and a source of funding for personal and business needs. Banks use customer deposits to issue loans, then earn profit by charging interest on those loans.
While banking has existed since at least the 14th century, the basic idea hasn’t changed—banks manage deposits and extend credit. What has changed is the range of services, from mobile apps to investment tools.
The Federal Reserve used to require banks to hold a portion of deposits in reserve, but that rule is currently set to zero unless changed by the Fed. This is known as the reserve requirement.
Who Regulates Banks and Why It Matters
In the U.S., banks are regulated to ensure they operate safely and protect customer deposits. The Federal Reserve serves as the central bank, overseeing the nation’s money supply and lending system. Most countries have a similar central authority.
Banks must be licensed to accept deposits and issue loans. U.S. banks can operate under a state or national charter, and oversight may come from several federal agencies, including:
- The Federal Reserve
- The Office of the Comptroller of the Currency (OCC)
- The Federal Deposit Insurance Corporation (FDIC)
Neobanks, or online-only banking platforms, have also grown in popularity. These fintech companies partner with licensed, FDIC-insured banks to offer digital services. Because of this partnership, neobanks can be just as secure as traditional banks.
What is a bank?
A bank is a financial institution licensed to accept deposits and provide loans. Some focus on consumers, while others serve large corporations or investment clients. Each type plays a unique role in the financial system.
Types of Banks
Banks can serve very different purposes depending on who they’re built for. Some focus on everyday consumers, while others cater to businesses, governments, or investors. Here’s a breakdown of the main types of banks you’ll see today.
Retail Banks
Retail banks are built for everyday banking. They offer checking and savings accounts, personal loans, credit cards, and other consumer services. These are the most common banks for individuals and families.
Savings and Loan Associations (S&Ls)
S&Ls focus on savings accounts and mortgage lending. They’re often used by first-time homebuyers or people building toward homeownership.
Commercial Banks
Commercial banks provide services for businesses and corporations. They offer business loans, commercial real estate financing, and treasury services, though many also serve individual customers.
Investment Banks
Investment banks work with large companies and governments. They help raise capital, manage mergers, and provide access to public markets. They’re less about checking accounts and more about complex financial strategies.
Online Banks and Neobanks
Online banks and neobanks operate entirely online with no physical branches. Their lower overhead often translates to better interest rates and fewer fees. Most partner with FDIC-insured institutions to keep your money protected.
Credit Unions
Credit unions are nonprofit, member-owned alternatives to traditional banks. They often provide better rates and personalized service. Membership is usually based on where you live, work, or go to school. Deposits are insured by the NCUA.
See also: Credit Unions Anyone Can Join
Most Popular Banking Products and Services
As we’ve seen, different banks provide a different focus of services to various customer bases. That said, the banking industry does provide some common services that are widely available through the vast majority of consumer banks and credit unions.
Checking Accounts
Checking accounts are the foundation of the consumer banking industry. These are designed to securely store and quickly access your money on a daily basis. Checking accounts also facilitate the use of direct deposit, ATM transactions and debit cards.
See also: Best Checking Accounts
Savings Accounts
Savings accounts are also a staple of consumer banking. These accounts are designed to securely hold and grow your money by accumulating interest. A savings account is often used alongside a checking account, which allows people to easily separate the money they want to spend from their savings.
See also: Best Savings Accounts
Certificates of Deposit
A certificate of deposit, or CD, can be thought of as a more advanced type of savings account. These accounts are designed to put your savings away for a specified period of time, typically from six months up to four or five years. The benefit of agreeing to store your money for an extended period is a higher interest rate.
Loans
Consumer banks and credit unions often provide customers with several types of loan products. These can include personal loans, auto loans, mortgages and home equity loans. Depending on your bank or credit union, they may offer other loan products such as refinancing, credit builder loans, and more.
Debit Cards & Credit Cards
A debit card is connected to your checking account, and allows you to easily pay for goods and services directly from that account. Debit cards are a popular and common financial product, as they remove the need to carry cash and are also relatively secure. Also, unlike credit cards, they don’t run the risk of getting you into debt.
Credit cards can be issued by banks or credit unions, and allow you to make purchases on a personal line of credit. Each time you use a credit card to make purchases, you are borrowing money from your bank, which will be paid back with interest.
Credit cards also come with other fees attached, and can lead you into debt if you are not able to keep up your balance paid regularly.
Money Market Accounts
A money market account is another type of savings account that offers higher interest rates compared to a traditional savings account. The catch is that they require a high minimum deposit to open, as well as a minimum balance to maintain.
In addition to stronger interest rates, money market accounts usually come with debit cards, checks, and FDIC or NCUA insurance protection.
See also: Best Money Market Accounts
Why Use a Bank? Key Benefits
Banks do more than hold your money—they help protect it, grow it, and make it easier to access. Whether you’re managing everyday expenses or planning for the future, banking offers several important advantages.
Security and Insurance
Banks protect your money from theft, fire, and natural disasters. On top of that, most are backed by federal insurance. The FDIC insures deposits at banks up to $250,000 per depositor, per account category. Credit unions offer similar protection through the NCUA.
Convenience
With a bank account, you can deposit checks, pay bills, transfer money, and track spending—all in one place. Whether you prefer using a local branch or a mobile app, banks make managing your finances easier and more efficient.
Opportunities to Grow Your Money
Banks offer tools to help your savings grow. From high-yield savings accounts to CDs, IRAs, and even retirement accounts, you’ll find options to earn interest and build long-term wealth.
How to Choose the Right Bank for You
Choosing a bank comes down to what you need, how you manage money, and which features matter most to you. Here’s what to consider before opening an account.
Services You Actually Need
Start by identifying the services you use most—like checking, savings, mobile apps, or loans. If you rely on credit cards or want a high-yield savings account, make sure those options are available.
Fees and Account Costs
Monthly fees, ATM charges, and overdraft penalties can add up fast. Some banks—especially online ones—offer low-fee or no-fee accounts. Compare policies to see which bank fits your habits and avoids nickel-and-diming you.
Physical Access vs. Online-Only
If you like visiting a branch, choose a bank with nearby locations. If you’re comfortable managing everything on your phone, an online bank might offer better rates and fewer fees.
Reputation and Customer Reviews
Look up what other customers are saying. Online reviews can give you insight into customer service, mobile app performance, and how easy it is to get help when you need it.
Bottom Line
Banks help you do more than stash your cash—they give you tools to manage spending, grow savings, borrow money, and build credit. They’re also critical to the broader economy, especially when it comes to financing homes and small businesses.
Finding the right bank depends on your priorities. Compare features, fees, and reputation before you decide. The right choice can make managing your money easier—and even help it grow over time.
Frequently Asked Questions
Can I use more than one bank at the same time?
Yes. Many people use different banks for different needs—such as keeping a checking account at a local bank and a high-yield savings account at an online bank. Just make sure you can easily manage transfers and track your balances.
What happens if my bank goes out of business?
If your bank is FDIC-insured, your deposits are protected up to $250,000 per depositor, per account category. If the bank fails, the FDIC typically arranges for your account to be transferred to another institution or refunds your insured balance.
How can I check if a bank is FDIC-insured?
You can search the FDIC’s BankFind tool online or look for the FDIC logo on the bank’s website or at its branches. For credit unions, look for NCUA insurance, which provides the same level of protection.
Can I open a bank account without going to a branch?
Yes. Most banks—especially online banks—let you open an account entirely online. You’ll typically need to provide your personal information, a government-issued ID, and a way to fund the account, like a debit card or bank transfer.
Are online banks as safe as traditional banks?
As long as the online bank is partnered with an FDIC- or NCUA-insured institution, your money is just as protected as it would be in a traditional bank. Security features like encryption and two-factor authentication also help keep your account safe.
