What is a Financial Institution?

Financial Institutions describe companies that offer money-related goods and services. This includes, but is not limited to, transactions like: 

  • Investments
  • Loans
  • Mortgage
  • Stocks
  • Bonds
  • Asset purchasing
  • Currency exchange
  • Cash deposits
  • Wealth management
  • Retirement planning

Meanwhile, some companies referred to as Financial Institutions are:

  • banks
  • brokerage firms
  • investment dealers
  • insurance companies
  • trust companies

Each company has its focus or specialty and addresses a different kind of financial need.

In turn, these financial institutions help spread and strengthen the finance industry. They help distribute capital wealth and decrease risk levels. They allow for businesses to start and the economy to grow. 

Transactions with Financial Institutions

People, at some point, will have to transact with at least one financial institution. This could mean something as basic as opening a bank account. Or something more complex like acquiring a business loan.

Regardless, careful consideration is necessary when choosing a financial institution. You have to assess which institution to go to, depending on their financial concerns.

Some considerations in choosing what financial institution to transact business with are:

  • Types of services offered versus needed
  • High rate returns
  • Eligibility to apply
  • Promotes direct investment
  • Assist in securing liquidity of stocks
  • Affordable financial services
  • Systematic approach
  • Precise and calculated risk levels

Different Types of Financial Institutions

One way to classify financial institutions is to distinguish between banks and non-banks. 

Banking institutions’ primary services include deposits and loan products.

But, non-banks are not licensed to accept deposits and loan products. But, they offer plenty of services that banks could not.

Here is a list of financial institutions and what each type offers:

Retail Banking

This is a type of banking service familiar to most people. It is also called consumer or personal banking.

The main clients of retail banks are individual consumers. They provide a platform for deposits. Clients can manage their money by creating savings and checking accounts.

Retail banks also provide personal loans, credit cards, currency exchange, and home mortgages.

A retail bank is the best option for individuals to find a secure place to store their money. Interest is also applicable, based on the federal funds rate regulation.

Banks provide debit cards to clients. This allows easy payment for purchases and withdrawal of cash through ATMs. Online transactions are available, too.

Commercial Banking

While retail banking focuses on individual consumers, commercial banks target businesses and corporations. Thus, it is also sometimes referred to as corporate banking.

Most commercial banks still offer personal banking accounts and services. But, on top of basic retail banking services, commercial banking also provides:

  • Business credit products and loans
  • Treasury services
  • Employer services like payroll facilities and retirement plans for employees
  • Asset management services

Insurance Companies

Insurance companies are the most common non-bank financial institutions available. It is also the oldest non-bank institution there is.

In a nutshell, insurance companies protect client assets by providing insurance products. They cater to both individuals and businesses. They lessen financial risks for people and companies to the best of their abilities. 

Investment Firms

Under this type is where one can seek experts for financial management. They offer various ways of investments, including stocks, bonds, hedge funds, and equity. 

Simply put, investment firms and brokerages provide financial advisory and wealth management services.