What is retail banking? (2024)

Definition and example of Retail Banking

Retail customers are members of the general public. They take care of their personal financial needs, unlike organizations such as governments or corporations that may require more complex services. Retail banks are designed to meet these needs. Their services are tailored to the individual.

These services can be offered at a local branch or online. This includes daily deposits and withdrawals, checking and savings accounts, loans, credit cards and more. Retailbank is designed for the everyday needs of the average consumer.

• Nickname:Consumer banking, personal banking

How Retail Banking Works

Retail banks handle the financial needs for everyday expenses and life events, such as home purchases. The products and services offered by retail banks include:

• Bank accounts:These include checking accounts, savings accounts and money market accounts. Checking accounts often come with payment cards to make purchases. They offer the opportunity to do thispay bills online or electronically. Savings and money market accounts pay more interest than checking accounts, but typically place a limit on how often you can withdraw or transfer money.
• Certificates of Deposit (CDs):These sometimes pay more interest than savings accounts, but you often need to leave your money untouched for at least several months to avoid thisearly withdrawal penalties.
• Credit card:These are similar to debit cards, but allow you to buy things now and pay for them later. They represent a loan that you must repay. You will be charged a finance charge based on the card's annual percentage rate (APR) if you do not pay the full balance on your statement within the grace period.
• Cash box:These are storage areas where small valuables and important documents are kept within the walls of the bank so that they cannot be stolen or destroyed in your home.
• Mortgage:These products help people buy or refinance a home.Other mortgage loanallowing people to borrow money against a property that is already mortgaged, using their own assets as collateral.
• Car loan:With these loans, people can buy or refinance a car.
• Unsecured personal loans:These products can be used for any purpose. They don't require you to do thatquiet certainty. Revolving lines of credit (including credit cards) allow borrowers to spend and repay money repeatedly without having to apply for a new loan each time they need money.

Not all banks may offer all these services. Check out a bank's website or ask a representative about its menu of services before signing up for an account.

Retail banks focus on personal bank accounts and services. Commercial banks focus on serving businesses. They may offer many of the same options, but they do so at a scale that fits the needs of businesses. Many banks offer both commercial and retail services.

Check out our loan calculator to find out how much your loan will actually cost you over time if you're considering a retail bank loan to pay for upcoming expenses or to consolidate existing debt.

Types of retail banks

These banks include major banks, often household names that you know. They often have physical locations on busy street corners.

Small institutions and community banks are also brick-and-mortar institutions that offer retail banking services. Small banks often have a smaller deposit market share in the United States than large banks, but they can operate in more locations. Community banks focus on offering consumer banking to a specific area. They often have a smaller footprint. They accept deposits and make loans locally.

Online banks don't have physical branches that consumers can visit in person, but they are another consumer banking option, especially if your goal is to minimize costs.

The costs of Retail Banking

Banks are there to make money. Credit unions also need to generate revenue to pay the bills. The easiest way to do that is to make loans using customer deposits and charge interest on those loans. The bank also pays customers interest on their deposits. Typically, the remaining income is retained as profit.

The reality of how retail banks make money is a little more complex. They also charge service fees that contribute to their bottom line. Banks may charge monthly maintenance fees, overdraft fees if you use more money than is available in your account, and modest fees for writing checks orsend bank transfers.

Alternatives to retail banking

Despite the cost, the consumer banking services offered by retail banks make it easier for individuals to manage their finances. It is possible to deal with itwithout a bank account, but life is getting harder. Without retail banking, you may spend more time on routine financial tasks. You may pay multiple fees for one-time transactions.

Retail banks are not alonekind of sofa. There are even certain services that you offermustrely on other types of banks because retail banks do not offer them.

• Central banks:These banks act as the financial agent of the central government and manage the country's money supply and international reserves. The activities include issuing money and holding deposits of other banks or central banks.
• Commercial banks:These banks focus on business customers. They can offer services that retail customers use, such as checking and savings accounts and loans, but they also address the unique needs of businesses, such as the ability to borrow larger amounts of cash for operations and the need to make different types of payments to accept from customers.
• Credit unions:These community banks offer many of the same services as large banks, but they are often nonprofit institutions that serve a group of people with something in common, such as an employer or a union.
• The investment bank:These banks help companies operate in the financial markets.An investment bank can help a company raise money by selling bonds to an investor.

Some banks are active in multiple markets. They are retail banks, commercial banks and investment banks at the same time. You may be able to open a business account with the same private bank that you use for your personal needs.