What Is The Difference Between Commercial and Investment Banking?

 | 
June 19, 2021
UPDATED: 
June 15, 2021
What Is The Difference Between Commercial and Investment Banking?

Commercial Banks

Commercial banks are a safe haven for your financial needs, giving you the opportunity to earn money with savings accounts. Commercial bank account holders get all of that when they deposit their hard-earned cash into an interest-bearing account or invest in one of the saving certificates.

Commercial banks largely make money by providing loans and earning interest income from the loans. Customer accounts, including current and saving accounts, provide the money for these banks to lend out at a rate of 5% each year with no risk to their capital as they are insured up to $250,000 per depositor through FDIC coverage. The lack of customer choice in terms of lending rates has led many customers towards other financial avenues such as mutual funds or stocks which would offer them more attractive prospects than commercial banking does currently.

Investment Banks

An investment bank is a financial middleman who helps corporations get debt financing, set up IPOs, and facilitate corporate reorganization. They also act as brokers or advisors for institutional clients such as pension funds and other financial institutions. One thing that sets them apart from traditional banks is their retail operations. They have to serve small individual customers in addition to their larger institutional ones with large sums of money. Investment banking can be an exciting career choice because you'll never know what will happen next!

Key Differences

Commercial banks are highly regulated by federal authorities such as FDIC. These institutions offer a certain level of protection for customer accounts, but investment banks differ because they're not as tightly regulated by organizations like the SEC. The Commission offers less security to customers while allowing these financial establishments more operational freedom than their commercial counterparts.

Investment banks offer the type of investment that is of higher risk, but also high reward. They have a comparative weakness when it comes to government regulations which means there's more room for things to go wrong than in other investments like commercial banking because they're not regulated tightly by governments.

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