DEFINITION
Retail Banking is the everyday banking between customers and their banks. Retail banks offer basic banking services to consumers, such as checking accounts, savings account, and loans.
The Key Takeaways
- Retail banking provides basic financial services and accounts to consumers.
- The services offered include credit cards, checking and savings account, loans, withdrawals and cash deposits.
- Retail banks make their money by charging various fees and interest rates on your deposits.
- Most banks offer their retail services in-person, online or both.
Retail Banking: Definition and Examples
Retail customers are the members of the public. Retail customers are individuals who have their own financial needs. They don’t need complex services like businesses or government agencies. Retail banks are specifically designed to meet their needs. They offer services that are customized to each individual.
They may be available at a branch near you or online. These services can include daily withdrawals and deposits, savings and checking accounts, loans and credit cards. Retail banking is geared towards the needs of everyday consumers. 1
- Alternative name: Personal banking, consumer banking
How Retail Banking Works
Retail banks provide financial services for life’s everyday expenses and major life events such as purchasing a home. Retail banks provide a range of products and services, including:
- Bank Accounts: This includes checking accounts, saving accounts, and money-market accounts. Checking accounts are often accompanied by debit cards that can be used to make purchases. They allow you to make payments online or by electronic. Savings accounts and money market account pay higher interest rates than checking accounts. However, they usually have a limit to how frequently you can withdraw money or transfer it.
- Certificates Of Deposit (CDs):These often pay higher interest than savings account, but you have to leave your money unattended for several months in order to avoid penalties for early withdrawal.
- Credit Cards: They are similar to debit card, but allow you to purchase items now and pay later. You have to repay the loan. If you do not pay the entire amount on your statement during the grace period, finance charges will be applied based on an annual percentage rate.
- Safe Deposit Boxes:These storage areas keep valuables such as documents and small valuables within the walls of the bank so that they cannot be stolen or destroyed at home.
- Home Loans:These loans help people purchase or refinance their home. Second Mortgages allows people to borrow against an already mortgaged property, using the equity in their home as collateral. 5
- Auto Loans: These are loans that help people purchase or refinance an automobile.
- Unsecured Personal Loans:These loans can be used to any purpose. You don’t have to offer collateral. Credit cards and revolving credit lines allow you to borrow money, spend it, then repay it repeatedly.
Some banks offer these services, while others may not. Before you open an account, check out a bank’s site or speak to a representative for more information.
Retail banks concentrate on providing personal banking services and accounts. Commercial banks are geared towards serving businesses. Many of the options are the same, but the scale is tailored to the business’ needs. Many banks provide both retail and commercial services.
Use our loan calculator to estimate the cost of your loan over time, if you are considering a retail loan to cover an upcoming expense or consolidate debt.
$ Your Credit Score%OR Total Interest Paid$ 3,719.28Loan amount$ 15,000.00
Types of retail banks
You may be familiar with the names of these banks. These banks often have branches located on busy streets.
Brick-and-mortar banks, such as small institutions and community banking institutions, also offer retail banking. Small banks have a lower share of the U.S. deposits market than large banks but may operate multiple locations. Community banks focus primarily on consumer banking in a specific area. They usually have a smaller presence. They make local loans and accept deposits. 7
Online banks do not have physical branches where consumers can personally visit, but they are another option, especially if you want to minimize fees.
Note:
According to the Institute for Local Self-Reliance, the four largest banks in the United States (Citigroup, JP Morgan Chase Wells Fargo and Bank of America) account for 36% of market share. The Institute for Local Self-Reliance reports that four of these banks, Citigroup, JP Morgan Chase Wells Fargo and Bank of America, account for 36% of the market share.
Retail Banking Costs
Banks are in business to make money. Credit unions must also generate revenue in order to pay their bills. To do this, the most basic thing to do is to lend money from customer deposits and charge interest. Customers also receive interest from the bank on their deposits. The bank usually retains any profits as leftover earnings.
Retail banks make money in a more complicated way. The banks also charge fees to boost their profits. They may also charge service fees that boost their bottom line.
Note:
Retail banking fees are generally determined by the size of the bank and its fee categories. Twelve of the biggest retail banks in 2021 charged between $30 to $37.50 per overdraft. 11
Alternatives to Retail Banking
Retail banks provide consumer banking services to help individuals manage their finances. You can get by with no bank account but it will be harder. Without retail banks, you might have to spend more time doing routine financial tasks. You may pay higher fees for transactions.
There are other types of banks besides retail banks. There are some services that you can only get from other types of bank, as retail banks do not offer.
- Central Banks: The central bank is the agent of the government in managing the money supply, international reserves and the currency. The central bank’s activities include issuing money and holding deposits from other banks or central banking institutions.
- Commercial Banks:These are banks that cater to business clients. These banks may provide services to retail customers, like checking and savings account and loans, but also to businesses that have unique requirements, like the need to borrow large amounts of money for their operations or to accept different types of payment from customers.
- Credit Unions: Local banks that offer similar services to big banks but are often nonprofit institutions. They serve groups of people who share something, like an employer or labor union.
- Investment Banks: These banks assist businesses in operating on the financial markets. An investor might buy bonds from an investment bank to help raise money for a company.
Some banks operate in multiple markets. Some banks are simultaneously retail banks as well as commercial and investment banks. You may be able open a business bank account with the same retail banking institution that you use to meet your personal needs.
