12 Types of Banks: How They Work & Who They’re Best For (2025)
Many business owners, freelancers, and finance teams in 2025 are looking for the types of banks that best align with their financial goals, both personal and commercial. While conventional institutions still play a big role, the rise of specialized and digital-centric providers has caused some interesting shifts. For anyone comparing online vs. traditional banking differences, there are plenty of viable options to consider in this rapidly changing industry.
Why Banking Choices Matter in 2025
In 2025, interest rates and emerging technologies have created a banking environment that can either support or hinder your financial strategy. According to Deloitte, the net interest margin for banks is projected to settle around 3% by year-end 2025 (1). This modest margin points to continued innovation, with many institutions turning to digital solutions in order to improve profitability. For you, the banking partner you select can shape whether you access high-yield savings, flexible commercial lending, or next-generation tools like AI-driven budgeting.
You’ll find below the 12 common types of banking institutions, how they operate, and who they are ideally suited for.
1) Retail Banks
How They Work
Retail banks, sometimes called consumer banks, serve individuals and small businesses. They generally offer checking accounts, savings accounts, personal loans, mortgages, and credit cards. Big names in the U.S. include JPMorgan Chase and Bank of America, each investing heavily in digital tools.
Who They’re Best For
If you need straightforward personal banking products—like basic checking or a mortgage—retail banks can be a practical fit. They often feature mobile apps for transfers, bill payments, and budgeting tools. However, these banks may charge more fees than some online-only competitors.
Trending Fact
As of late 2024, 76% of Americans used mobile banking apps for routine tasks—a jump from 65% in 2020 (2). This surge suggests retail banks will keep refining user experiences in an attempt to hold onto consumer loyalty.
2) Commercial Banks
How They Work
Commercial banks cater to businesses, ranging from modest startups to global corporations. They offer services such as commercial loans, business checking accounts, cash management, and trade finance. Many also extend cross-border products for companies operating internationally.
Who They’re Best For
A commercial bank is suitable for entrepreneurs and larger enterprises needing specialized, business-focused solutions. From financing real estate developments to managing daily business transactions, commercial banks can offer valuable credit facilities and merchant services.
An Option Beyond Traditional Routes
For cross-border payments outside of the typical bank arrangement, you might explore a specialized platform like Mural Pay. Their Payments service supports quick transactions in over 40 currencies, featuring batch payments for contractor or vendor needs.
Market Note
S&P Global observed that institutions managing US$10 billion to US$100 billion in assets hold some of the highest commercial real estate loan concentrations—about 199% of risk-based capital (1). This concentration hints at both potential opportunities and risks inside commercial banking.
3) Investment Banks
How They Work
Investment banks specialize in underwriting securities, facilitating mergers and acquisitions (M&A), and providing advisory services to governments, corporations, and institutional investors. They also may trade stocks, bonds, and other instruments on behalf of clients.
Who They’re Best For
Businesses or government entities looking to raise capital through public offerings, or seeking guidance on complex deals, typically partner with investment banks. If your enterprise expects to go public or engage in high-stakes transactions, an investment bank’s advisory services are indispensable.
Stat to Know
Worldwide investment banking fees rose to $128.2 billion in 2024, with M&A advisory comprising roughly 38% of that figure (3). This underscores the continued importance of sophisticated advisory roles.
4) Online Banks
How They Work
Online banks, also labeled digital-only or internet banks, operate primarily through websites and mobile apps, bypassing traditional physical branches. Because they typically have less overhead, many can offer higher interest rates on savings and fewer fees.
Who They’re Best For
If you prioritize convenience, lower monthly fees, and competitive interest rates, an online bank might be your go-to. You can transfer funds, pay bills, and deposit checks via your phone or computer, which can be a prime solution for freelance workers or remote professionals always on the move.
Performance Snapshot
Nearly 15% of total U.S. deposits are now held at online banks, up from 8% only a few years prior (3). This trajectory reflects consumers’ growing preference for digital services.
5) Credit Unions
How They Work
Credit unions are not-for-profit cooperatives owned by their members. Earnings are typically reinvested to offer lower fees and better loan rates. They too provide standard financial services—checking, savings, mortgages, and sometimes small business loans.
Who They’re Best For
A credit union might be your best choice if you appreciate local community ties, personalized service, and potentially more favorable rates. High-yield accounts and member perks can be especially appealing.
Important Figure
Across the U.S., about 4,800 credit unions serve over 130 million members by 2025 (3). Many are expanding into blockchain-based services, highlighting their willingness to adopt new tech solutions.
6) Savings and Loan Associations
How They Work
Savings and loan associations (S&Ls) concentrate on real estate financing, most notably home mortgages. They also accept savings deposits. In recent years, some S&Ls have branched out into consumer lending or small business loans to remain competitive.
Who They’re Best For
Individuals and families solely focused on securing a mortgage or building home equity may find S&Ls a solid match. Those wanting specialized mortgage advice or simplified processes tend to favor these institutions.
Data Point
S&Ls currently manage about 8% of total U.S. mortgage debt (3). They’ve declined in number since 1990, yet they remain an option for those desiring niche mortgage offerings.
7) Community Banks
How They Work
Community banks are smaller, locally owned institutions intent on building close relationships with their clientele. They may specialize in small business loans or agricultural financing, depending on regional economic drivers.
Who They’re Best For
People who value direct interaction and want to support hometown economies often prefer community banks. Rates and fees may not be as low as some online alternatives, but you gain personal connections and local expertise.
Interesting Figure
Though they represent 95% of all banking institutions, there are only about 4,200 community banks nationwide. Despite that, they issue roughly 60% of all small business loans and 80% of agricultural loans in the U.S. (3).
8) Neobanks
How They Work
Neobanks are fully digital financial providers that often partner with established chartered banks to hold deposits. They concentrate on agile user experiences—like intuitive budgeting tools or crypto integration—without legacy systems.
Who They’re Best For
For early adopters or tech-savvy entrepreneurs, neobanks might offer unique perks: low-fee accounts, automated expense tracking, or even direct stablecoin support. Some freelancers flock to neobanks for easy sign-up processes and specialized features.
Fast Growth
Powered by advanced app functionality, neobanks captured $47.1 billion in global market value in 2024 and foresee substantial expansion from 2025 onward (3).
9) Private Banks
How They Work
Private banks concentrate on wealth management for high-net-worth individuals. Clients receive personal advisors, estate planning, portfolio management, and lifestyle services. Minimum balances can run into the millions.
Who They’re Best For
Investors and families requiring in-depth guidance on trusts, philanthropic planning, or multi-generational wealth strategies often seek private banks. These banks typically promise discretion and premium support.
Sustainability Angle
Private banks are increasingly embracing ESG (Environmental, Social, and Governance) investing. In 2024, global green bond issuance reached $1.5 trillion (3), reflecting interest in more responsible portfolio strategies.
10) Merchant Banks
How They Work
Merchant banks assist companies in receiving international trade financing. They often underwrite or issue securities and assist with corporate loans for expansions, including cross-border projects.
Who They’re Best For
Businesses pursuing import-export activities or expansions into foreign markets frequently rely on merchant banks for trade financing. If your enterprise deals with supply chains abroad, a merchant bank can facilitate letters of credit or specialized transactions.
Tech Integration
In 2024, Standard Chartered launched a blockchain-based trade finance platform that cut typical letter-of-credit processing times from 5–10 days to under 24 hours (3). Merchant banks increasingly adopt such technology for secure, transparent dealings.
11) Central Banks
How They Work
Central banks, like the Federal Reserve or European Central Bank, govern monetary policy, issue national currency, and oversee financial stability. They can adjust interest rates, buy or sell government securities, and implement economic policies at a macro level.
Who They’re Best For
Central banks are not for individual customers. However, if you track interest rate trends or inflation, central bank decisions directly affect your personal or business strategy.
Future Direction
By 2025, 11 countries have launched official central bank digital currencies, led by China’s digital yuan, which ranks highest by transaction volume (3). This shift may reshape how we handle cross-border retail payments over the next several years.
12) Islamic Banks
How They Work
Islamic banks follow Sharia principles: they prohibit charging interest (riba) and shun certain investment areas. Instead, profit-and-loss sharing structures govern loans and returns.
Who They’re Best For
Clients who want faith-compliant financial solutions utilize Islamic banks. These institutions can also be attractive for socially conscious investors who prefer business activities that meet ethical guidelines.
Industry Growth
Valued at $2.7 trillion in 2024, the Islamic finance sector is projected to maintain a CAGR around 10.2% through 2030 (3). This rising popularity indicates a broader acceptance of such banking approaches worldwide.
Additional Considerations: Key Banking Trends for 2025
While each category meets specific customer needs, the industry as a whole continues to shift. Recent data shows 80% of surveyed bankers feel optimistic about future growth, even though many face hurdles from interest rate shifts and compliance demands (1). Here are some noteworthy developments:
Digital Engagement: About 87% of banks in developed markets offer open banking APIs (application programming interfaces), illustrating the spread of data sharing and platform-based financial services (3).
Cybersecurity Emphasis: More than $70 billion was spent globally on cybersecurity by banks in 2024 (3). Expect additional authentication layers, including biometrics, to protect depositors.
Global Connectivity: For those required to move money abroad, cross-border solutions range from standard wire transfers to specialized payment platforms. If you need further insights on money flows from overseas clients, explore this best ways to receive money from abroad resource.
Final Insights
Choosing among these 12 banking types depends largely on your personal or commercial objectives. A freelancer needing low-fee services might favor online banks or neobanks. A manufacturing firm striving to expand internationally might require a commercial or merchant bank. If you want a deeper understanding of how multi-country strategies can come together, try checking out an international banking guide that covers account structures, regulations, and capital flows.
Ultimately, your ideal pick should match your goals—whether it’s prioritizing local relationships, robust digital tools, or broad accessibility. If you’re juggling faster cross-border payments or stablecoin on/off-ramps, you can also look beyond traditional banking to modern providers dedicated to business-focused solutions.
For more advice on global financial options, consider reviewing the Top Global Banks for Worldwide Banking. Each path has its advantages in 2025, but being informed about the entire range of choices can help you design a strategy that best fits your daily operations, long-term ambitions, and overall financial health.
References
Deloitte. (2024). “Banking Industry Outlook.” Available at: https://www2.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-outlooks.html
NerdWallet. “Best Banks and Credit Unions.” 2024. Available at: https://www.nerdwallet.com/p/best/banking/best-banks-and-credit-unions
S&P Global. (2024). “Banking Trends and Forecast.” Available at: https://www.spglobal.com/_assets/documents/ratings/research/101608155.pdf
