A commercial bank is a for-profit institution that takes deposits from individuals and businesses, lends that money out, and charges fees for services

The most recognizable examples in the United States are Chase, Bank of America, Wells Fargo, and Citibank. These are institutions where you open a checking or savings account, apply for a mortgage or car loan, and pay bills. A commercial bank's main job is to accept your deposits, keep them safe, and use a portion of that money to make loans to other customers—keeping the difference between what they pay you in interest and what they charge borrowers as profit.

The term "commercial" refers to the fact that these banks serve both individual customers and businesses of all sizes. They are regulated by federal agencies like the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), which means your deposits up to $250,000 per account type are insured against bank failure. This is different from investment banks, which primarily trade securities and advise on mergers, or credit unions, which are member-owned nonprofits.

Key Takeaways

  • Commercial banks accept deposits, make loans, and charge fees—they profit from the spread between what they pay depositors and what they charge borrowers.
  • Major examples include Chase, Bank of America, Wells Fargo, and Citibank, all of which serve both individuals and businesses.
  • The FDIC insures deposits up to $250,000 per account type at commercial banks, protecting your money if the bank fails.
  • Commercial banks differ from investment banks (which trade securities) and credit unions (which are member-owned and nonprofit).
  • You interact with commercial banks when you open a checking account, take out a loan, or use a debit card.

How a commercial bank makes money

A commercial bank earns revenue from three main sources: the interest spread, fees, and investment income. When you deposit money into a savings account, the bank pays you a small interest rate—often less than 1 percent annually. That same bank then lends your money (along with deposits from thousands of other customers) to borrowers at a much higher rate. A mortgage might carry 6 to 7 percent interest, a car loan 5 to 8 percent, and a credit card 18 to 25 percent. The difference between what the bank pays you and what it charges borrowers is the interest spread, and that is the bank's primary profit.

Beyond interest, commercial banks charge fees for services: monthly account maintenance, overdraft fees, wire transfer fees, ATM fees at out-of-network machines, and fees for stopping a check or closing an account early. Some accounts waive these fees if you maintain a minimum balance or set up direct deposit. Banks also earn money by investing deposits in securities, trading currencies, and providing advisory services to business customers.

What services a commercial bank provides

Commercial banks offer a wide range of services to both individuals and businesses. For personal customers, this includes checking and savings accounts, money market accounts, certificates of deposit (CDs), debit cards, credit cards, and online banking. They also provide consumer loans: personal loans, auto loans, mortgages, home equity lines of credit, and student loan servicing.

For business customers, commercial banks offer business checking and savings accounts, merchant services (the ability to accept credit card payments), payroll processing, commercial loans, lines of credit, equipment financing, and cash management services. Larger commercial banks also provide investment advisory services, wealth management, and foreign exchange services to high-net-worth individuals and corporations.

How commercial banks differ from credit unions

A credit union is a nonprofit, member-owned financial institution, whereas a commercial bank is a for-profit corporation owned by shareholders. This structural difference affects how each institution operates. Credit unions typically offer lower fees and higher interest rates on savings accounts because they return profits to members rather than shareholders. However, credit unions usually have smaller branch networks and fewer ATMs than large commercial banks.

Credit unions also have membership requirements—you might need to work for a specific employer, live in a certain area, or belong to a particular organization to join. Commercial banks are open to anyone. Both credit unions and commercial banks are insured by the FDIC or the National Credit Union Administration (NCUA), so your deposits are protected up to $250,000 in either case.

How commercial banks differ from investment banks

An investment bank does not take deposits from the public or offer checking accounts. Instead, it advises corporations and wealthy individuals on mergers and acquisitions, underwrites securities (helps companies issue stock or bonds), and trades stocks, bonds, and derivatives on its own behalf. Investment banks like Goldman Sachs, Morgan Stanley, and JPMorgan Chase's investment division make money from advisory fees, underwriting fees, and trading profits—not from the interest spread on deposits.

The line between commercial and investment banking has blurred since the 1999 repeal of the Glass-Steagall Act, which had separated the two. Today, many large institutions like JPMorgan Chase and Bank of America operate both commercial and investment banking divisions under the same parent company. However, the commercial banking side still takes deposits and makes consumer loans, while the investment banking side handles securities and corporate advisory work.

Regulation and deposit insurance at commercial banks

Commercial banks are heavily regulated to protect depositors and maintain financial system stability. The Federal Reserve sets monetary policy and supervises large banks. The OCC charters and regulates national banks. The FDIC insures deposits and takes over failed banks. State banking regulators oversee state-chartered banks. This multi-layered regulation means commercial banks must maintain certain capital reserves, undergo regular audits, and follow strict lending standards.

The FDIC deposit insurance may provide is crucial: if a commercial bank fails, the FDIC will reimburse you up to $250,000 per depositor, per bank, per account type. This means if you have a checking account and a savings account at the same bank, each is insured separately up to $250,000. If you have accounts at two different commercial banks, each bank's deposits are insured separately. This protection does not extend to investments like stocks or mutual funds held at the bank—only to deposits.

Examples of commercial banks and their services

Chase (JPMorgan Chase) operates over 4,700 branches nationwide and offers checking, savings, credit cards, mortgages, auto loans, and investment services. Bank of America has roughly 3,600 branches and provides similar services plus wealth management for high-net-worth clients. Wells Fargo operates approximately 3,000 branches and specializes in mortgages, auto loans, and business banking. Citibank has a smaller U.S. branch network but offers global banking services and investment products.

Regional commercial banks like U.S. Bank, PNC Bank, and TD Bank serve specific geographic areas with full-service banking. Online-only commercial banks like Ally Bank and Charles Schwab Bank offer checking and savings accounts with no physical branches but often higher interest rates on savings because they have lower overhead costs. All of these are commercial banks—they take deposits, make loans, and charge fees—but they differ in size, geographic reach, and the specific products they emphasize.

Frequently Asked Questions

Is my money safe at a commercial bank?

Yes, up to $250,000 per account type. The FDIC insures deposits at all commercial banks, so if the bank fails, you will be reimbursed. Investments like stocks or mutual funds held at the bank are not insured, only deposits in checking, savings, and money market accounts.

What is the difference between a commercial bank and a savings bank?

A savings bank historically focused on residential mortgages and savings accounts, while a commercial bank served both individuals and businesses with a broader range of loans and services. Today, the distinction has largely disappeared—most large institutions offer both consumer and commercial products.

Can I use a commercial bank's ATM for free?

Yes, if it is the bank's own ATM. Using another bank's ATM usually costs $2 to $3 per transaction. Many commercial banks offer fee reimbursement if you maintain a high balance or pay a monthly fee for premium accounts.

Do commercial banks offer investment accounts?

Yes, but through their investment division. Commercial banks can offer brokerage services, mutual funds, and advisory services, though these are separate from deposit accounts and are not FDIC-insured. Some commercial banks also own investment banking divisions that handle securities underwriting and corporate advisory work.