If you have ever assumed a bank and a financial institution are the same thing, you are not alone. A bank is a financial institution, but it is only one type among several.
Different financial institutions serve different purposes. Some hold deposits, some make loans, some help people invest, and others provide insurance. Knowing the difference can make it easier to choose the right institution for the financial task in front of you.
What Is a Financial Institution?
At its simplest, a financial institution is an organization that provides financial products or services to individuals, businesses, or other organizations.
Depending on the institution, those services may include:
- Holding deposits
- Making loans
- Processing payments
- Buying or selling investments
- Providing financial advice
- Offering insurance
Many people use several financial institutions without thinking much about the categories. Your paycheck may go to a bank or credit union, your auto loan may come from another lender, and your retirement investments may be held through a brokerage.
Sorting institutions by what they do is often more useful than trying to memorize every possible category.
The Main Types of Financial Institutions and What Each One Does
Here are several common types of financial institutions and the roles they typically play.
Commercial Banks
Commercial banks commonly provide products such as:
- Checking and savings accounts
- Credit cards
- Mortgages
- Auto and personal loans
- Payment and money-transfer services
Banks may serve individuals, businesses, or both. Banks can also differ by charter and regulator, so “commercial bank” does not describe one single regulatory structure.
Many banks are for-profit institutions owned by shareholders.
Credit Unions
Credit unions offer many of the same consumer services as banks, including deposit accounts, loans, and payment services.
Their ownership structure is different. The National Credit Union Administration (NCUA) describes a federal credit union as a member-owned, member-controlled, not-for-profit cooperative financial institution. Members generally must meet the credit union’s eligibility requirements to join.
Membership can be based on factors such as employment, association membership, or residence in a defined community, depending on the credit union’s charter.
Because products, rates, and fees vary by institution, it is better to compare the actual account or loan terms than assume a credit union will always be cheaper or pay more than a bank.
Savings and Loan Associations
Savings and loan associations, sometimes called thrifts or savings associations, are depository institutions with a historical focus on residential mortgage lending and savings products.
Today, the services offered by a savings association can overlap significantly with those of a commercial bank. Federal savings associations are chartered and supervised by the Office of the Comptroller of the Currency (OCC).
Investment Banks and Brokerages
Investment banks and brokerage firms serve different roles, even though both operate in financial markets.
Investment banks typically help companies, governments, and other organizations raise capital and complete financial transactions such as securities offerings or mergers.
Brokerage firms help customers buy and sell investments such as stocks, bonds, mutual funds, and exchange-traded funds. Investor.gov explains the role of brokers.
Brokerage accounts should not be confused with traditional bank deposit accounts. Investment values can rise or fall, and investment protections are different from FDIC deposit insurance.
Insurance Companies
Insurance companies provide financial protection against certain covered risks.
Customers pay premiums, and the insurer may pay benefits or claims when covered events occur under the terms of the policy.
Common types of insurance include:
- Life insurance
- Health insurance
- Auto insurance
- Homeowners insurance
Insurance companies are financial institutions, but they serve a different function from banks or lenders because their primary role is managing and transferring risk.
Non-Bank Lenders
Non-bank lenders provide loans or other credit products without operating as traditional deposit-taking banks.
Depending on the company, that may include:
- Mortgage lending
- Personal loans
- Auto financing
- Private student lending
- Certain point-of-sale financing products
The CFPB has described nonbanks as companies that offer consumer financial products or services but do not have a bank, thrift, or credit-union charter and do not take deposits.
Loan terms, interest rates, fees, and eligibility requirements can vary widely among non-bank lenders, so comparing the full cost and terms of an offer is important.
Some less commonly encountered institutions include trust companies, bank holding companies, industrial banks, and Farm Credit System institutions. Most consumers do not interact with all of these directly, but they are also part of the broader financial system.
| Type | Main role |
| Commercial bank | Holds deposits, makes loans, processes payments |
| Credit union | Member-owned deposits, loans, and financial services |
| Savings and loan association | Deposit services with a historical focus on home lending |
| Investment bank | Helps organizations raise capital and complete financial transactions |
| Brokerage firm | Helps customers buy and sell investments |
| Insurance company | Provides financial protection against covered risks |
| Non-bank lender | Provides credit without operating as a traditional deposit-taking bank |
Pro Tip: Grouping Financial Institutions by What They Do
Another way to understand the categories is to group institutions by their primary function.
Deposit-Taking Institutions
Banks, credit unions, and savings associations can accept eligible deposits and offer services such as checking and savings accounts.
Lending Institutions
Banks, credit unions, and non-bank lenders may provide consumer or business credit. The important distinction is that non-bank lenders generally do not fund themselves by accepting traditional insured deposits from customers.
Investment Institutions
Brokerage firms and investment banks operate in securities and capital markets, although they serve different customers and functions.
Insurance Institutions
Insurance companies help customers manage financial risk through policies that cover specified events or losses.
These categories can overlap. A large financial company may operate multiple subsidiaries or business lines that perform different functions.
Who Regulates Financial Institutions?
Financial regulation in the United States is divided among several federal and state agencies, and the correct regulator depends on the institution’s charter, activities, and structure.
For example:
- The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises national banks and federal savings associations.
- The Federal Reserve supervises institutions including state member banks, bank holding companies, savings and loan holding companies, and certain foreign banking organizations.
- The Federal Deposit Insurance Corporation (FDIC) insures deposits at FDIC-insured banks and also has supervisory responsibilities for certain insured institutions. See What the FDIC Does.
- The National Credit Union Administration (NCUA) regulates federal credit unions and administers the National Credit Union Share Insurance Fund for federally insured credit unions.
- The Securities and Exchange Commission (SEC) regulates securities markets and many securities-market participants, including broker-dealers.
That means there is no single regulator overseeing every type of financial institution.
How Deposit Insurance Works
Deposit insurance is especially important when comparing places to hold cash.
At an FDIC-insured bank, the standard deposit insurance amount is $250,000 per depositor, per insured bank, per ownership category. See the FDIC’s deposit insurance FAQs.
Federally insured credit unions receive similar protection through the National Credit Union Share Insurance Fund. Coverage depends on account ownership and other details, and the standard protection is generally $250,000 for qualifying ownership interests. See the NCUA’s share insurance FAQs.
That protection applies to qualifying deposit or share accounts, not to market losses on investments such as stocks, bonds, or mutual funds.
Before opening a bank or credit-union account, it can be useful to confirm that the institution is federally insured and understand how the coverage rules apply to the way your accounts are titled.
Which Type of Financial Institution Fits What You Need?
There is no single type of financial institution that is best for every purpose.
A commercial bank may make sense if you want checking, savings, borrowing, and payment services in one place.
A credit union may be worth considering if you qualify for membership and its particular fees, rates, or services are competitive.
A brokerage firm may be appropriate when your goal is to buy or hold investments, while an insurance company serves a different purpose by helping protect against covered financial risks.
If you need a loan, you may encounter banks, credit unions, or non-bank lenders. Comparing the interest rate or APR, fees, repayment terms, and eligibility requirements can be more useful than choosing based on the institution’s category alone.
Many people use several kinds of financial institutions at the same time. The goal is not necessarily to keep everything with one company, but to understand which institution is providing which service and what protections, costs, and risks come with it.
The Bottom Line
Banks are only one part of the financial system.
Financial institutions can hold deposits, extend credit, facilitate investments, insure against risk, or perform several of those functions through different business lines.
Understanding the main types of financial institutions can make it easier to compare products, understand how your money is protected, and choose an institution that fits the particular financial service you need.
