11 Types of Banks, How It Works and Who They're Best For

From everyday spending and savings to taking out loans or opening a business bank account for a new venture, banks quietly shape almost every financial decision we make. However, not all banks work the same way. Different banks and financial institutions operate under different models, offer different services, and provide distinct benefits. That’s why it’s essential to understand the different types of banks you can do business with.

In this article, we’ll explore the different types of banks and financial institutions, highlight their key features, and explain who each type of bank is best suited for.

Before exploring the different types of banks, it helps to understand what a bank does.

A bank is a financial institution authorised to accept deposits and provide credit. In addition to these core functions, banks may also offer financial services such as check cashing, wealth management, and insurance.

Banks primarily earn money by lending out customer deposits. They charge borrowers higher interest rates than they pay to depositors, and the difference generates profit. Banks also earn revenue through bank fees, such as account maintenance fees and transaction fees.

By connecting savers and borrowers, banks play a key role in keeping money moving through the economy and supporting financial stability.

Banks are regulated by government bodies and the central bank*. Regulators set rules that require banks to hold enough capital so they can manage financial risks. Banks must also comply with risk management rules, banking regulations, and regular audits.

In addition, consumer protection laws help protect customers from unfair practices and ensure clear and honest communication. Most banks are a part of government-backed deposit insurance schemes. For example, in the US, the Federal Deposit Insurance Corporation (FDIC) protects deposits up to $250,000 per depositor per bank if a bank fails. In the UK, the Financial Services Compensation Scheme (FSCS) protects bank deposits up to £120,000 per person, per bank if a bank or building society fails.

In this article, we explain the different types of banks, as well as other financial institutions that are not technically banks but are often discussed alongside them and offer similar services.

Retail banks, also referred to as consumer banks or personal banks, are banks that serve individual consumers by offering everyday financial services. Some also provide small business accounts. Some small businesses choose retail banks because they are easier to qualify for and more convenient, with more branches and longer operating hours than commercial banks.

Examples of retail banks include Bank of America, Standard Chartered, ICBC, Barclays, and Lloyds Bank.

A commercial bank provides services specifically tailored to businesses and commercial activities.

While commercial banks often involve higher fees than retail banks, they compensate by offering a wider range of services and specialised products designed to meet business needs.

Examples of retail banks include Citigroup and Chase.

An investment bank is a bank that helps companies, governments, and other large organisations raise capital and carry out complex financial transactions, especially underwriting and investments in capital markets. Its core activities include stock and bond management, advising on mergers and acquisitions, and securities trading.

Unlike retail or commercial banks, investment banks do not primarily take deposits or make everyday loans. 

Examples of investment banks include J.P. Morgan, Goldman Sachs, and Morgan Stanley.

A universal bank is a bank that combines the services of retail banks, commercial banks and investment banks under one organisation. 

By operating across multiple financial areas, universal banks can serve individuals, businesses, and governments with a wide range of financial needs in one place.

Examples of universal banks include Barclays, Citigroup, Credit Suisse, HSBC, and JPMorgan Chase & Co.

Credit unions are member-owned financial cooperatives that provide services to their members, usually within a specific community, such as in local areas or certain professions.

Their services are similar to those offered by retail and commercial banks and are aimed at individuals, startups, and small businesses. Because credit unions are not for-profit and are exempt from federal and most state taxes, they can often offer better interest rates on loans and savings accounts, as well as lower fees than traditional banks.

Examples of credit unions include Alliant Credit Union in the United States and Manchester Credit Union in the United Kingdom.

Private banks provide financial services to high-net-worth clients, like CEOs of larger corporations or someone with minimum liquid assets of USD 1 million . They focus on personalised services such as wealth management, investment advice, estate planning, and tax planning.

Unlike retail banks, private banks offer tailored solutions based on a client’s financial goals and risk preferences. They typically require high minimum balances and assign dedicated relationship managers to provide customised advice and support.

Examples of private banks include J.P. Morgan Private Bank, Citi Private Bank, and HSBC Private Banking.

Savings and Loan Associations (S&Ls), also known as thrift banks or savings banks, are mutually owned financial institutions that offer mortgages, refinance loans, and alternative home loans using deposited savings.

Their main focus is home lending, often serving local communities with competitive mortgage rates and higher savings yields than larger banks. Some S&Ls also offer limited savings accounts and other deposit accounts. Business services are generally more limited compared to those for individual customers.

Islamic banks are banks that operate under Islamic law, or Shariah, which prohibits interest (Riba). Instead of charging or paying interest, they use profit sharing and asset-backed financing, sharing both profits and losses with the clients they finance. 

Islamic finance also avoids investments in businesses engaged in prohibited (Haram) activities like alcohol or pork production, adheres to strict prohibitions against speculative transactions (Maisir), and rejects contracts with excessive uncertainty or risk (Gharar).

Examples of Islamic Banks are Al Rajhi Bank, Dubai Islamic Bank and Kuwait Finance House

A Green Bank is a purpose-driven financial institution that finances environmentally sustainable projects by offering loans, credit, and investment support. These banks are often created by or partly associated with governments at different levels, with a specific mandate to achieve environmental objectives. An example is the New York Green Bank.

Challenger banks are licensed banks that challenge traditional banks with digital-first services.  Challenger banks may also be referred to as Online banks, Digital banks, or Virtual banks.

They offer most of the services that traditional banks do, but primarily through digital channels. Many challenger banks do not set up physical branches, while a few still maintain a limited number of locations. They aim to offer better rates, lower fees, or smoother digital experiences than traditional banks. These banks have been a growing trend, focusing on improving their services through innovation, technology, and convenience.

Some of the most popular challenger banks include Revolut, N26, Monzo, and Starling Bank.

Neobanks are financial technology companies that deliver financial services entirely through digital platforms, without physical branches. They allow customers to manage, send, and receive money through mobile apps or websites. Neobank typically emphasises user-friendly design, competitive fees, and innovative features.

The definition of a neobank can vary by region. In many countries, neobanks are not licensed banks. Instead, they are fintechs with payment service licenses, often partnering with banks to hold customer funds.

Some of the most well-known neobanks include Chime in the United States and Monzo in the United Kingdom.

After discussing both challenger banks and neobanks, they may seem similar at first glance. However, there are a few key differences, which are summarised below.

Choosing the right bank depends on how you plan to use it and the services you need.

For everyday personal banking, such as spending, saving, and basic loans, retail banks and credit unions are the most suitable options.

If you want to open a business bank account, small businesses and startups may find retail banks, challenger banks, or neobanks easier to access, while growing or established businesses often benefit more from commercial banks that offer higher limits.

Businesses looking to raise capital typically work with investment banks, while those wanting multiple services in one place may prefer universal banks. If you have specialised needs—such as wealth management— private banks may be a better fit.

Understanding your priorities, such as cost, access to credit, digital features, and international reach, will help you choose the right type of bank or financial institution.

Now that we’ve covered the most common types of banks and financial institutions, you may notice that most of them are still built around traditional models. While these institutions work well for many, they have their own hurdles—for example, account opening may involve in-person processes, strict eligibility criteria, high minimum balances, or limited flexibility for newer or internationally structured companies.

If you’re looking for a digital-first solution to manage business payments and handle multiple currencies for cross-border transactions, Statrys is worth considering as an alternative.

Statrys is not a bank, but a licensed payment service provider offering financial services to businesses incorporated in Hong Kong, Singapore, and the British Virgin Islands (BVI).

Below is a summary of key services 

✅Multi-currency business accounts that support holding and managing 11 major currencies

✅Local and international payment, with international payment tracking

✅Foreign exchange (FX) services with competitive rates and fees

✅Dedicated account manager for personalised support via phone, email, live chat, WhatsApp and WeChat

✅100% online application process