Types of banks: Are you banking at a thrift, bank or credit union?

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There’s a good chance you don’t know the difference between a thrift, a bank and a credit union.

Each financial institution serves a specific purpose. Choosing the right one could boost your savings and increase your bottom line.

Here’s a breakdown of the different types of banks.


Commercial banks have traditionally been the largest source of loans to small businesses. They also make consumer loans, including mortgages, and offer credit cards, deposit products and checking accounts for everyone.

Banks can offer insurance and investment products such as mutual funds and IRAs through separate companies within the same bank holding company. Many banks also offer trust services, estate planning and asset management.

Banks vary in size from megabanks with hundreds or thousands of branches nationwide to small community banks that specialize in serving the needs of the local clientele. Many banks are publicly held corporations.

What is the Federal Reserve?

The Federal Reserve is the United States’ central bank. It controls the flow of money in and out of banks and maintains the stability of the financial system. All national banks must be members of the Federal Reserve. Membership is optional for state banks.

National banks are chartered, regulated and supervised by the Office of the Comptroller of the Currency headquartered in Washington, D.C. National banks have “National” or “N.A.” in their names.

State banks are chartered, regulated and supervised by their state’s banking division. The Federal Deposit Insurance Corp. is the federal regulator of state-chartered banks that don’t belong to the Federal Reserve System.


Thrifts — or savings and loan associations — have come a long way from the days when they only offered savings accounts and mortgages. Today’s thrifts offer checking accounts and provide business and consumer loans.

Thrifts can be owned by their shareholders (stock ownership) or by their depositors and borrowers (mutual ownership). They can either be federally or state-chartered institutions.

While there are some differences between savings banks and savings and loan associations in terms of how they are set up, Congress has removed all differences between the federally chartered facilities as to the kinds of loans and investments they can make.

The Office of the Comptroller of the Currency is the primary regulator of federally-chartered thrift institutions, while the FDIC regulates state-chartered thrifts.

Credit unions

Credit unions are not-for-profit, cooperative financial institutions. Traditionally, people with a common bond have formed them — they work in the same industry or are members of a particular workers’ union, share the same religion, etc.

Today, the membership restrictions have softened significantly. Many credit unions simply require that you live or work in a certain geographic area in order to become a member.

The vast majority of credit unions in the United States are federally or state-chartered institutions that are insured by the National Credit Union Administration, or NCUA.

Compared to banks and thrifts, credit unions may offer a higher yield on deposit products like CDs. And they may offer loans at lower rates. Credit unions are exempt from federal taxation.

The NCUA is the federal agency that charters and supervises federal credit unions and insures deposits in state-chartered credit unions. Like the FDIC, the NCUA insurance covers the balances of members’ share accounts up to $250,000 per person, per institution for each account ownership category. If you’re unsure about whether all your assets at a credit union would be covered, the NCUA has a Share Insurance Estimator to help.

Online banks

Online banks, which usually have no brick-and-mortar branches, first gained attention by offering higher rates on deposit products than traditional banks. While the rate differences are not as significant as they were in the past, it doesn’t hurt to consider money market or savings accounts that pay extra interest.

You’ll want to make sure your potential online bank offers the following:

  • Insurance up to $250,000 from the FDIC.
  • Two-factor or multifactor authentication.
  • Encrypted transactions.

You should research a virtual bank’s policies and customer reviews, the way you would with any bank.