Money Matters: What Is Banking?

Although many people use the U.S. banking system, not everyone understands how it works. Find out more about banking.

portrait of Tessa Cooper
by Tessa Cooper

Published August 23, 2022

Edited by Amelia Buckley
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Money Matters: What Is Banking?
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Most American households rely on the banking system to store and access their money. In fact, the Federal Deposit Insurance Corporation (FDIC) finds that only 5.4% of American households do not have an account at an insured depository institution. Although many people use the U.S. banking system, not everyone understands how it serves customers and the government.

So what is banking? Banking encompasses three sectors: retail banking, commercial banking, and investment banking, with many other types of financial institutions under those umbrellas. Banks offer loans and credit to businesses and individuals who use the funds to stimulate the U.S. economy. Banks also provide jobs for Americans. These institutions hire professionals like tellers and loan officers. Keep reading to learn about the finance and banking industry.

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How Does Banking Work?

The meaning of banking shifted after the banking crisis during the Great Depression. After many Americans lost the money they stored in banks, the government passed the Banking Act of 1933.

This act of Congress created the FDIC. This independent organization insures deposits. It also oversees financial institutions for quality control purposes.

Since banks play an important role in economic health, it's in the government's interest to have a safe banking system. Private banks provide important services to U.S. citizens and businesses. The government also regulates banking interest rates to control inflation.

Banks and citizens have a mutually beneficial relationship. These institutions provide loans and credit to customers. In return, they make money by charging service fees and interest. Banks also borrow money from depositors' savings accounts and pay them through an interest rate. Banks can legally sell their customers' financial information as well.

What Is a Central Bank?

A central bank is a public institution that manages a country's currency. Nearly every country has a central bank.

The Federal Reserve System is the central bank of the United States. This institution influences interest rates, protects consumers, and ensures banks operate effectively. This organization's efforts ensure a stable U.S. economy by conducting the nation's monetary policy. Private banks can borrow money from the Federal Reserve System.

Major Players in American Banking
Bank Consolidated Assets (as of June 2022)
JPMorgan Chase & Co. $3,380,824
Bank of America $2,440,022
Wells Fargo Bank $1,712,535
Citibank $1,720,308
US Bank $582,253

Source: Federal Reserve Statistical Release

Types of Banks

Retail Banks

These institutions provide services to individuals and sometimes small businesses. Retail banks offer consumer credit products like mortgage banking, personal loans, credit cards, and debit cards. Some retail banks offer extra services like fraud protection and currency exchange. Retail banks charge varying service fees.

Commercial Banks

Commercial banking refers to the sector of banking that works with large corporations and small businesses. They provide similar services as retail banks, but not for individuals. Some commercial banks offer special loans for equipment and other startup costs. Some banks host both commercial and retail banking services.

Investment Banks

Investment banks provide services to all types of investors, including individuals, corporations, and government sectors. They work as an intermediate between businesses and investors, conducting complex and large transactions. These organizations hold new business shares and sell them to these investors.

Credit Unions

Credit unions provide similar services as banks. However, they operate as not-for-profit cooperative organizations. These member-owned organizations typically charge lower service fees than banks. The FDIC does not oversee credit unions, but the National Credit Union Administration (NCUA) does. The NCUA is also an independent government agency.

Savings and Loans

Some institutions offer only savings and loan services. Savings and loans companies provide loans to their members, usually for real estate purchases. These organizations use saving deposits from their members to issue these loans. Like credit unions, members own savings and loans companies.

Online Banks

While some traditional banks offer online banking services, certain banks operate entirely online. Online banks do not have brick-and-mortar locations. Customers can deposit checks online and monitor their accounts virtually. If they need customer service, they call or chat with a representative. People who bank at online banks can still withdraw cash from ATMs in most cases. The FDIC still oversees online banks.

Community Banks

Community banks are locally owned and operated. Just like retail banks, they provide checking and saving accounts and loans to individuals and small businesses. These institutions provide specialized services that meet the needs of area businesses and families. The FDIC also oversees community banks.

Careers in Banking

People with an interest in finance, economics, and customer service often thrive in banking careers. Aspiring bankers often earn degrees or certificates in banking, finance, or economics. The banking industry offers careers for people with varying interests and skill sets.

Many people begin their banking careers as bank tellers. After learning how banks function, they may earn a promotion to a loan officer position. People with more of an interest in finance may pursue roles as personal financial advisors or financial analysts.

The earning potential in the banking industry varies widely depending on the position type. According to the Bureau of Labor Statistics (BLS), people working in the business and financial industry earned a median annual income of $76,570 in May 2021.

In the next section, we highlight five banking careers and their corresponding median annual salary.

Bank Teller

Working as a bank teller allows people to get basic experience in this industry. In fact, college students can even work as part-time tellers while they earn their degrees. Tellers process transactions like deposits and withdrawals. They also answer customer questions and record all transactions they oversee.

Median Annual Salary (as of May 2021)
$36,310

Job Growth Outlook
-17% projected job growth from 2020-2030

Degree Level
High school diploma or equivalent


Loan Officer

Loan officers evaluate and authorize loan applications. They consider factors like debt-to-income ratios and credit history when approving loans. They also review loan agreements to ensure law compliance. Loan officers usually specialize in a few loan types, like commercial loans or mortgage loans.

Median Annual Salary (as of May 2021)
$63,380

Job Growth Outlook
1% projected job growth from 2020-2030

Degree Level
Bachelor's degree


Financial Examiner

People working as financial examiners monitor bank activities and ensure compliance with federal banking laws. These workers often review balance sheets and establish guidelines for banks. They also evaluate the health and risk of financial institutions. In 2020, 42% of financial examiners worked for credit intermediation companies, according to the BLS.

Median Annual Salary (as of May 2021)
$81,410

Job Growth Outlook
18% projected job growth from 2020-2030

Degree Level
Bachelor's degree


Personal Financial Advisor

These professionals make recommendations for individuals on managing their money. Personal financial advisors help people save for specific goals like retirement or their child's college education. The majority of these professionals work in the finance or insurance industry or work as self-employed individuals.

Median Annual Salary (as of May 2021)
$94,170

Job Growth Outlook
5% projected job growth from 2020-2030

Degree Level
Bachelor's degree


Financial Analysts

Financial analysts study the economy and make investment recommendations based on their findings. They evaluate investment risk based on data like management performance and financial performance. Financial analysts normally specialize in one niche area. For example, financial risk specialists evaluate threats to investments. Portfolio managers oversee a curated investment collection.

Median Annual Salary (as of May 2021)
$81,410

Job Growth Outlook
6% projected job growth from 2020-2030

Degree Level
Bachelor's degree

Is Banking Right for Me?

People who enjoy working with numbers, thinking analytically, and learning about current economic trends often enjoy working in banking. This career may not suit people who do not like math or working in an office setting. Banking also requires strong customer service skills.

Finance banking jobs typically only require a bachelor's degree but pay a higher-than-average income.

According to the BLS, some finance jobs only require a bachelor's degree and pay more than $80,000. Individuals interested in a career switch may choose banking because it mainly just requires on-the-job training.

However, an advanced degree or graduate certificate in banking or finance may lead to even more opportunities.

Banking could be right for you if…

  • You perform well in math courses.
  • You have a personal interest in investing and economics.
  • You are an analytical thinker with an eye for detail.
  • You enjoy interpersonal communication.
  • You like helping other people reach their financial goals.

Frequently Asked Questions About Banking

What banking job pays the most?

Financial managers are among some of the highest earners in this field. According to the BLS, these professionals earned a median annual income of $131,710 in May 2021. In 2020, 32% of financial managers worked at insurance companies or financial institutions like banks.

Location also plays a role in the earning potential. For example, Californian financial managers earn an annual mean wage of $166,220.

An advanced degree may lead to expanded earning potential in banking.

Can I work in banking without a degree?

You can get your start in banking without a bachelor's degree. Bank tellers usually only need a high school diploma or its equivalent. By gaining on-the-job experience, you may advance to higher-paying roles within the bank. Or, you can pursue a certificate to learn more about finance.

However, some employers may prefer job candidates with bachelor's degrees. This especially may apply to jobs like loan officers, financial managers, and analysts.

What do you need to open a bank account?

Checking accounts usually require very few documents to open. Most banks require at least two forms of government identification, like a driver's license, passport, or Social Security card. They also need your Social Security number and your contact information.

Generally, banks only open accounts for people ages 18 and up. However, minors can open custodial accounts with permission from a parent or guardian. However, different rules apply for credit cards through a bank. Getting a card under the age of 21 can be difficult.

What does a mortgage banker do?

A mortgage banker refers to a person or entity that funds or initiates home loans. Some mortgage bankers work on commission and earn a percentage of each loan value they sell or approve.

Some mortgage bankers manage a mortgage during the repayment process. They sometimes sell a mortgage to another company during the repayment period.

Mortgage bankers offer varying interest rates for the loans. Successful mortgage bankers offer the most competitive rates while still earning a profit.

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