What Is Retail Banking?

Find out what a retail bank offers and what sets it apart from other banks

Man using his credit card online for shopping and banking with sunlight coming through window
••• Andrew Brookes / Getty Images

A retail bank is a bank that works with consumers and offers basic banking services, including checking accounts, savings accounts, and loans. Retail customers are members of the general public taking care of their personal needs (as opposed to organizations such as governments or businesses that might need more complex services). Understanding retail banking allows you to efficiently carry out everyday financial activities.

Types of Retail Banks

These banks include:

  • Large banks: These are often the household names in consumer banking that you’re familiar with; they often have physical branches on busy street corners.
  • Small institutions and community banks: These are also brick-and-mortar banks that offer retail banking services. Small banks usually have a smaller U.S. deposit market share than large banks, but they may operate in multiple locations. Community banks focus on providing consumer banking to a particular community; they usually have a smaller footprint and accept deposits and make loans locally.
  • Online banks: These banks don't have physical branches where consumers can bank, but are another option for consumer banking, especially if your goal is to minimize fees.

The largest retail banks in the nation cumulatively hold around 66% of all domestic deposits.

Retail Banking Services

Retail banks handle financial needs for everyday spending and life events such as buying a home. The products and services that retail banks offer include:

  • Bank accounts: These include checking accounts, savings accounts, and money market accounts. Checking accounts often come with a debit card for making purchases and the ability to pay bills online or electronically. Savings and money market accounts pay more interest than checking accounts, which usually offer less interest, but they impose a limit on how often you can withdraw or transfer money from the account.
  • Certificates of deposit (CDs): These sometimes pay more than savings accounts, but you usually need to leave your money untouched for at least several months to avoid early withdrawal penalties.
  • Credit cards: These are similar to debit cards but allow you to buy things now and pay for them later. They represent a loan you have to pay back, and if you don't pay the full amount listed on your statement within the grace period, you will incur finance charges that depend on the annual percentage rate (APR) of the card.
  • Safe deposit boxes: These are storage spaces that keep small valuables such as important documents or valuables within the bank’s walls (so that they can’t be stolen or destroyed in your home).
  • Home loans: These products help people buy a home, and can be refinanced. Second mortgages allow borrowers to take out a loan on a property that is already mortgaged using your house as collateral.
  • Auto loans: These loans help people buy a car, and can also be refinanced.
  • Unsecured personal loans: These products can be used for any purpose and do not require you to pledge collateral. Revolving lines of credit (including credit cards) allow borrowers to spend and repay repeatedly without applying for a new loan.

Costs of Retail Banking

Banks exist to make a profit, and credit unions also need to bring in revenue to pay the bills. The most basic way that retail banks earn money is to make loans with customer deposits and charge interest on those loans. At the same time, it pays customers interest on their deposits and usually keeps any leftover earnings as profits.

However, the reality of how retail banks earn money is a bit more complex; they also charge service fees that boost their bottom lines. For example, banks may charge monthly maintenance fees, overdraft fees when you spend more money than you have available in your account, and modest fees to print cashier’s checks or send wire transfers.

The specific customer fees for retail banking generally depend on the bank's size and the fee category. Among the 50 big banks with the largest share of U.S. deposits, for example, the median per-transaction overdraft fee was $34 as of 2017, whereas a median of $31 applied to smaller banks and credit unions.

Other Types of Banks

Despite the costs, the consumer banking services that retail banks offer make it easier for individuals to handle their finances. It is possible to get by without a bank account, but life might be more difficult. Without retail banks, you might spend more time on routine financial tasks and pay more fees for one-off transactions.

However, retail banks aren't the only type of bank. In fact, there are certain services for which you must rely on other types of banks because retail banks do not offer them.

  • Central banks: These banks act as the financial agent for the central government, managing the nation's money supply and international reserves, issuing currency, and holding the deposits of other banks or central banks.
  • Commercial banks: These banks focus on business customers. They may offer services that retail customers use to business customers, such as checking and savings accounts and loans, but they also cater to the unique needs of businesses, such as the ability to borrow for operations and the need to accept various types of payments from customers.
  • Credit unions: These local banks offer many of the same services as the big banks; however, they are usually non-profit institutions that serve a group of people with something in common (an employer or labor union, for example).
  • Investment banks: These banks help businesses operate in the financial markets. For example, an investment bank might help a business raise money by selling bonds to the investor.

In addition, some banks work in several markets: They are simultaneously retail banks, commercial banks, and investment banks, for example. This means that you might be able to open a business account at the same retail bank that you use for your personal needs.

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