Commercial Banking vs. Personal Banking

Personal banking, sometimes called retail banking because of the retail services offered to consumers, differs from commercial banking in a number of ways. Financial products and services available to individuals differ from those offered to institutions. In addition to the products and services available and the types of customers served, commercial banking and retail banking often differ in the total amount deposited by individual customers. Personal banking deposits are generally much smaller than those from commercial bank customers.

In general, retail bank customers are individuals or families with deposits of less than $100,000. Some banks offer a separate class of retail banking for customers with over $100,000 in deposits called private banking. Commercial banking customers range from small businesses to very large businesses and corporations like Boeing, Microsoft, Walt Disney, or any other large institution. In some cases, a commercial customer may be another bank.

Loans made by a personal bank include personal loans, mortgages and auto loans. In general, these loans are much smaller than the loans offered by commercial bankers. However, some loans to small businesses are often about the same size as some mortgages. Commercial banks offer larger loans and lines of credit that allow a company to stay in business. For example, a company with very long lead-time products, like airplanes, may need a line of credit to meet payroll until it receives payment for its products.

Both commercial banking and personal banking offer checking accounts. However, personal savings accounts are generally much smaller than the accounts in which larger companies place their cash reserves. There are several types of commercial accounts, including fixed deposit, an interest-bearing account similar to a retail banking certificate of deposit (CD), and a current deposit, an account that generally pays no interest on money in the account.

Because of the amounts of money involved, commercial banking can often be more profitable for large financial institutions. However, there is also more risk because of the potential for larger losses. The potential for losses from personal banking are much smaller, thus they are lower risk. However, they also generally offer lower profits for large financial institutions.

People or organizations with very large deposits, such as some commercial clients and some private banking customers, are often more willing to accept higher risks with bank investments. This acceptability of risk can sometimes lead to high profits, but can also lead to large losses. Some commercial banks offer their customers access to unregulated hedge funds. Hedge fund access, as well as access to certain other high profit/high risk investments, is not available to most retail banking customers.