Commercial Bank Definition and it’s Types

1. What is a Commercial bank?

A commercial bank is a financial institution, where you can make deposits and receive loans. For example, a savings and loan association.

2. What are the types of commercial banks?

Commercial banks can be classified as public or private. Public refers to those that are owned by the government or controlled by government regulation while private refers to those that are owned by private groups.

3. The common types of commercial banks?

     Commercial Banks can be classified into two:

1. Commercial bank

2. Savings bank

4. The main differences between a commercial bank and a Savings Bank?

a) A commercial bank is more concerned about its profits since it is privately owned. A savings bank on the other hand is concerned with the interests of its depositors since it is publicly owned.

b) Commercial Banks can accept deposits without limits or they can act as agents to finance an investment project while savings banks are limited by law in terms of amounts that can be invested and in return for sheltering funds they pay a nominal rate of interest.

c) Commercial banks have a wider range of services and products offered to the public as they are profit-oriented while savings banks primarily offer basic deposit, loans and insurance services.

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5. How does a commercial bank work?

A commercial bank works like a typical bank. A customer (like an individual or a corporation) would go to the bank and present some form of identification, such as their passport. They then would go to the teller and say that they wanted to open an account.

The teller is responsible for checking if:  

a) the customer has an account at that bank already or not,

b) the customer has closed his/her previous account if they have any.

The teller would then ask for the minimum deposit amount to open an account. The customer can choose any amount he/she wants as long as it is within the minimum and maximum deposit limit set by the bank. The customer would then fill out some forms for the account opening and he/she will receive an ATM card, which acts as a debit card.

6. Benefits of having a commercial bank account

There are many benefits to having a commercial bank account. Some of the main ones include:

  1. Convenience as you can make transactions via ATM or online banking.
  2. Safety and security the money that you deposit in the bank is insured by the government against loss due to fraud or theft. Additionally, if your ATM card is stolen, you are not liable for any money lost.

7. Disadvantages of having a commercial bank account?

Some of the main disadvantages include:  

  1. Certain accounts come with a high annual fee, which can add up if you have multiple accounts.
  2. Some banks discourage customers from sending money to other banks. In order to transfer money from one bank account to another, one has to pay a “transfer fee” that is usually very high.
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8. How does a commercial bank make money?

 A commercial bank makes money by charging fees on services offered to customers and they also invest their customers’ deposits in profitable instruments.