Banks perform a variety of functions in addition to offering checking and savings accounts and granting loans. Their customers include everyone from individual consumers and small businesses to governments and global corporations.

For this reason, there are different types of banks and different types of bank accounts. Understanding this will help you know how to choose a bank.

Here’s an overview of the different types of banks and their functions, so you can know what to look for in a bank and decide which one is right for you.

retail banks

Retail banks offer checking and savings accounts, mortgages and other loans to the public. Often referred to as “traditional” or “consumer” banks, retail banks also offer investment products such as certificates of deposit (CDs) and individual retirement accounts (IRAs).

Some retail banks offer credit cards and wealth management services to wealthy customers. A retail bank can be a small local bank or a division of a banking giant like JP Morgan Chase.

Retail banks are often insured by the Federal Deposit Insurance Corp. (FDIC). FDIC insurance protects customer deposits in the event of a bank failure.

Physical banks

Physical banks are those that operate branches. Bank of America, Chase and Wells Fargo are examples of large traditional banks with thousands of branches scattered across the country.

Many brick-and-mortar banks have also developed sophisticated websites and digital tools, giving customers the option of banking online or in-branch.

Online banks

Online banks are digital financial institutions without physical branches. They are sometimes referred to as “internet banks” because all transactions, such as paying bills, are done online from the bank’s website or using its mobile app.

Online banking customers must have a computer or smartphone and a secure internet connection. Online banks issue debit cards for making purchases and cash withdrawals, and they often use ATM networks such as Allpoint or MoneyPass.

Discover Bank and Ally Bank are two of the most well-known and reputable online banks. Check out Bankrate’s picks for the best online banks.

Neobanks

Neobanks are financial technology companies, or “fintechs,” that offer digital banking services through a mobile app or website. Sometimes called “challenge banks”, neobanks do not have branches. They typically offer checking and savings accounts and often have digital tools to help customers budget and save money.

Neobanks charge very low fees or none at all. Not all neobanks are licensed, meaning they do not operate under state or federal supervision. However, some neobanks partner with federally chartered and insured banks.

Chime and Varo Bank are examples of popular neobanks. Chime partners with two nationally chartered, FDIC-insured banks, and Varo Bank is a nationally chartered bank and a member of the FDIC.

commercial banks

Commercial banks serve businesses and governments. They provide accounts that allow complex entities to manage their money and conduct their operations, and they offer loans for commercial real estate, equipment, and other necessities.

Many large commercial banks, such as JP Morgan and Bank of America, also have consumer divisions that offer personal banking products.

Investment banks

Investment banking clients are typically large corporations and governments. Investment banks manage the investments of large pension funds, manage stock and bond issues to help their clients raise funds, and manage initial public offerings (IPOs) and mergers and acquisitions, among others .

Some investment banks, such as Goldman Sachs, also have consumer banking divisions.

The central bank

The Federal Reserve System is the “central bank” of the United States. The central bank has the responsibility to promote the proper functioning of the national economy, in the interest of the general public. It has five main functions:

• Conduct monetary policy to promote employment and price stability
• Promoting financial system stability and minimizing risk
• Promote the safety and soundness of individual financial institutions
• Promoting the security and efficiency of payment systems
• Protecting consumers and fostering community development

The Fed has enormous influence over the economy. For example, when it raises or lowers interest rates, banks act accordingly. This impacts the cost of mortgages, credit cards and other loans, as well as returns from consumer deposit accounts, such as savings accounts and certificates of deposit.

Alternative financial institutions

credit unions

Unlike banks, credit unions are not-for-profit institutions owned by their members. Like banks, they take deposits, make loans and provide a range of other financial services.

The benefits of credit unions flow back to their members in the form of lower fees, higher returns on savings accounts, and cheaper loans.

You must be a member of a credit union to use its products, and each credit union has its own criteria for membership, often based on a common interest, such as working for the same company or practicing a particular profession. Families of members are generally eligible. Sometimes joining is as simple as making a $5 deposit to open a savings account.

Community Development Financial Institutions (CDFIs)

A CDFI provides financial products and services and investment capital to individuals and businesses in low-income communities. Banks, credit unions, venture capital funds, and other public and private financial entities that invest in neighborhood revitalization can be CDFIs.

CDFIs work together as a national network to help people buy homes, start businesses and invest in schools, health centers and other projects in underserved communities. There are at least 1,000 CDFIs operating in the country.

Organizations must be certified as CDFIs. The fund is part of the US Treasury Department.

Savings and credit associations

The savings and loan associations focus on home loans, especially for single-family homes and other residential properties. Originally known as “savings” because they only offered savings products, savings and loans have expanded over the decades to other consumer and business products. business, such as checking accounts and mortgages.

Thrifts can be owned by their shareholders and depositors, or only by shareholders. The S&L crisis of the late 1980s and early 1990s closed many of these institutions or forced them to merge with other banks.

What to look for in a bank

Your needs and financial goals should guide you in choosing a bank. If you’re a consumer who only wants a basic checking account and direct deposit, your search criteria will be different than someone who needs the right accounts and services to run a business.

You can narrow your search by considering the pros and cons of banks versus credit unions. Other factors to consider when buying a bank include:

• Fees and other charges. Most of the best banks don’t charge high fees, or none at all.
• Interest rate. If you’re a saver, you’ll want a bank that pays a decent return on deposits. If you are looking to take out a loan, you will need a lender who charges lower rates.
• Digital banking tools. If you want to access online and mobile banking services, check out the bank’s website and digital tools and read reviews of its mobile app.
• Branches. If you prefer branch banking or a combination of online and branch banking, find out how many branches the bank has and if there is one near you.
• ATM Access. Make sure the bank has enough ATMs to meet your needs or is connected to an ATM network, such as MoneyPass. Otherwise, you risk paying high fees to use another bank’s ATMs.
• Menu of products and services. If you prefer a one-stop shop that has it all, check out banks with a wide range of products and services.
• Customer service. Not being able to get the answers or the help you need when you need it can be frustrating. Check the bank’s customer service hours, browse their FAQs, and find out if they offer online live chats.
• Insurance. Savers should ensure that the bank is federally insured, either by the FDIC or the National Credit Union Association’s Share Insurance Fund. If the bank or credit union fails, your deposits are insured up to $250,000.

At the end of the line

Finding a bank that’s right for you doesn’t have to be difficult. The first step is knowing what you need. Do not be afraid of online banks. They are often federally insured, just like traditional banks.

Don’t assume that a traditional bank will lag behind digital banking, as many major banks have very sophisticated, secure and user-friendly online and mobile banking tools. And don’t assume a giant commercial or investment bank can’t help you because many of them have consumer banking divisions with all the products and services of retail banks.

In the vast financial landscape, there is a bank that is right for you.