Financial Institutions

Depository and Non-depository

Commercial Banks

Commercial banks are often called full service institutions because they offer a wide variety of services, including checking and savings accounts, loans, credit cards, investments, and financial counseling. They operate under state and federal laws and usually are the largest depository institutions. Depository institutions are open to all individuals within a community.

Credit Unions

Credit unions are non-profit cooperative institutions that often charge lower fees and loan rates than other depository institutions. They are owned by their members. Government regulatory agencies require credit union members to possess a common bond such as people who live, work, or attend school in a well defined geographical

area. Many credit unions offer financial counseling, credit cards, and mortgages. They often provide a higher interest rate on savings and checking accounts than commercial banks. Credit union accounts offer unique services such as share drafts (checking accounts), and share certificate accounts (saving accounts).

Savings and Loan Associations

Savings and loan associations (S&Ls) focus on providing loans and mortgages to customers as well as offering both savings accounts and checking accounts. Compared to commercial banks, the interest rates are often higher.

Investment Banks

An investment bank is a financial intermediary that performs a variety of services for businesses and some governments. These services include underwriting debt and equity offerings, acting as an intermediary between an issuer of securities and the investing public, making markets, facilitating mergers and other corporate reorganizations, and acting as a broker for institutional clients. They may also provide research and financial advisory services to companies. As a general rule, investment banks focus on initial public offerings (IPOs) and large public and private share offerings. Traditionally, investment banks do not deal with the general public.

Insurance Companies

Insurance companies pool risk by collecting premiums from a large group of people who want to protect themselves and/or their loved ones against a particular loss, such as a fire, car accident, illness, lawsuit, disability or death. Insurance helps individuals and companies manage risk and preserve wealth. By insuring a large number of people, insurance companies can operate profitably and at the same time pay for claims that may arise. Insurance companies use statistical analysis to project what their actual losses will be within a given class. They know that not all insured individuals will suffer losses at the same time or at all.

Brokerage Companies

Brokerage Houses execute orders to buy and sell stock and other securities. Paid on commission, brokers help guide their customer in their choices, but they make money only when there is a transaction.

Loan Companies

Loan companies known as finance companies are private companies who lend money and make a profit on the interest. Because they offer loans to customers who are a higher risk, they charge higher interest to offset that risk.

Trust Companies

Trust companies administer retirement funds. While managing money for a fee, trust companies promise to provide future income. This income comes from investments made by an administrator. While the administrator hopes for a profit, a risk of loss also exists.