When most people talk about “the bank,” they’re usually referring to a commercial bank. These are the financial institutions people use every day to save money, pay bills, borrow funds, and manage their finances.
Commercial banks play a central role in both personal finance and the overall economy. Let’s break down what they are, how they work, and why they matter—without the confusing jargon.
What Does a Commercial Bank Do?
A commercial bank is a for-profit financial institution that serves individuals, families, and businesses. Its main job is to:
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Accept deposits from customers
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Lend that money to others
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Earn income from interest and fees
In simple terms, a commercial bank takes in money from savers and lends it to borrowers.
For example:
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You deposit your paycheck into a checking account
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The bank uses some of that money to offer a mortgage or car loan to someone else
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The borrower pays interest, and the bank earns a profit
Common Services Offered by Commercial Banks
Commercial banks offer a wide range of everyday financial services, including:
Everyday Banking
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Checking accounts
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Savings accounts
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Debit cards and ATM access
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Online and mobile banking
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Safe deposit boxes
Loans and Credit
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Home mortgages
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Auto loans
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Personal loans
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Credit cards
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Business loans and lines of credit
Savings and Investment Products
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Certificates of deposit (CDs)
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Retirement account services
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Basic investment support
For businesses, commercial banks also provide tools like payment processing, payroll services, and business financing.
Physical Banks vs. Online Banks
Traditionally, commercial banks operated out of physical branches where customers visited tellers and ATMs. While many banks still have branches, banking has changed dramatically.
Today:
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Most banks allow customers to deposit checks, transfer money, and pay bills online
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Some commercial banks operate entirely online, with no physical locations
Online-only banks often:
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Have lower fees
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Offer higher interest rates on savings
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Provide 24/7 digital access
The trade-off is that you won’t have in-person service.
How Commercial Banks Make Money
Commercial banks earn income in two main ways:
1. Fees
Banks charge fees for certain services, such as:
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Monthly account maintenance
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Overdrafts
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Late loan payments
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Safe deposit boxes
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Wire transfers
Not all banks charge the same fees, and many now offer low-fee or no-fee accounts.
2. Interest on Loans
This is the bank’s biggest source of income.
Here’s how it works:
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The bank may pay you a small amount of interest on your savings
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It then lends that money at a much higher interest rate
For example:
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You earn 0.50% interest on savings
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A borrower pays 6% on a personal loan
The difference is profit for the bank.
Major Types of Loans Commercial Banks Offer
Home Loans (Mortgages)
Mortgages are the largest category of bank lending. These loans are used to buy homes and are typically repaid over 15 to 30 years. The house itself acts as collateral.
Auto Loans
Car loans are shorter-term loans used to purchase vehicles. Interest rates are usually higher than mortgage rates, and the car secures the loan.
Credit Cards
Credit cards are revolving lines of credit that allow ongoing borrowing. They tend to have:
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Higher interest rates
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Late payment fees
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Additional charges
Because of these higher rates, credit cards can be very profitable for banks—but expensive for consumers who carry balances.
Why Commercial Banks Are Important to the Economy
Commercial banks do more than help individuals manage money. They also support economic growth.
They do this by:
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Providing credit to consumers and businesses
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Helping companies expand and hire workers
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Making it easier for people to buy homes and cars
By lending deposited money, banks increase the flow of money through the economy, which supports jobs, spending, and production.
Because banks are so important, they are heavily regulated to protect customers and the financial system.
Are Commercial Banks Safe?
For most people, yes.
In the United States:
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Deposits at most commercial banks are insured by the Federal Deposit Insurance Corporation (FDIC)
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FDIC insurance protects up to $250,000 per depositor, per bank, per account type
This means that even if a bank fails, your insured deposits are protected within those limits.
Commercial Banks vs. Investment Banks
Commercial banks and investment banks serve very different purposes.
Commercial Banks
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Serve everyday consumers and businesses
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Offer checking accounts, savings, and loans
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Handle daily financial needs
Investment Banks
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Work with large corporations and governments
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Help with stock offerings, mergers, and acquisitions
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Focus on complex financial transactions
While some large financial companies offer both services, the roles are distinct.
Examples of Commercial Banks
Many well-known banks in the U.S. are commercial banks, including:
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Large national banks with thousands of branches
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Regional and community banks
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Online-only banks
Some banks operate both in person and online, while others are fully digital.
Is Your Bank a Commercial Bank?
If your bank:
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Accepts deposits
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Offers checking and savings accounts
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Makes loans to individuals or businesses
Then it’s very likely a commercial bank.
Credit unions, while similar, are technically different because they are nonprofit, member-owned institutions.
The Bottom Line
Commercial banks are a cornerstone of everyday financial life. They give people a safe place to store money, access credit, pay bills, and build financial stability.
By accepting deposits and making loans, commercial banks help individuals reach personal goals—like buying a home—while also fueling economic growth across the country.
Whether you bank at a large national institution, a local community bank, or an online-only platform, you’re relying on the essential services that commercial banks provide every day.
