There are so many types of banking systems, such as utility, scheduled or unscheduled, indigenous, and so on. However, personal banking, as well as commercial banking, still plays a significant role in society. One type is into retail customers, while the other one is into businesses.
Let’s see what distinguishes each term!
- Personal banking is a service that caters to individual customers and helps them manage their financial needs and investments, while commercial banking serves businesses and corporations.
- Personal banking services include savings and checking accounts, loans, credit cards, and investments, whereas commercial banking provides loans, lines of credit, and business accounts to companies.
- Personal banking focuses on individual financial goals, such as retirement planning, while commercial banking helps businesses manage their day-to-day operations and achieve their financial objectives.
Personal Banking vs Commercial Banking
The difference between Personal Banking and Commercial Banking is that Personal Banking is a specially designed system to meet small retail customers’ needs. Meanwhile, commercial banking is a system that underscores vast profits through investments.
Personal Banking, also known as Retail Banking defined itself; it includes personal activities, such as private loans, mortgages, credit/debit cards, and auto loans, which are essentially small amounts. On the other hand, it includes the customer’s savings, transaction facilities, etc.
They provide their services to people instead of big companies, corporations, or businesses.
On the contrary, commercial banking includes providing financial services to the general public and businesses. It boosts the economy and social growth, and stability. They can work with the public sector as well as with the private sector.
Their function is to accept deposits from the public, rendering loans for companies or corporations to gain a considerable profit.
|Personal Banking tends to help individuals with any financial services. They offer financial support to retail customers in savings, credit, short-term or long-term loans, etc.
|Commercial Banking provides financial services for investment and consumption, which leads to profit. They accord deposits from the general public and transfer the funds by lending loans to companies to make a profit.
|The primary function of Personal banking is providing financial support, and advice, managing clients’ accounts, and other services. Reduce the risk factor by lending money.
|The main functions of Commercial Banking are accepting deposits(Savings, public, recurring deposits, and fixed deposits) and offering them as loans for consumption or investment. Commercial Banking also engenders creditworthiness.
|Retail Banking and Consumer Banking
|Mortgagee, depositary, and full-service bank
|Nowadays, Personal banking faces the risk of losing clients because of their increased credit rate, operational risk in case of errors, market rate due to fluctuation, and liquidity risk.
|The main risk of Commercial Banking is charging a low-interest rate, which causes a decrease in the Bank’s profit. By generating excess loans for consumption, investment leads to unable to pay the money by the borrowers.
|Personal Banking offers an affordable interest rate to its customers to evitable the cost of borrowing from other banking services. Most Personal Banking charge an interest rate of around 10.5-24 per cent.
|Commercial Banking keeps its interest rate between 2-3 per cent.
What is Personal Banking?
As mentioned earlier, personal banking is only for the personal cause of the client. It works based on the client’s interest. It helps clients manage their money and access credit cards and deposit facilities.
On the other hand, banks provide services such as checking and savings accounts, mortgages, personal loans, credit/ debit cards, access to foreign currency, remittances, automobile financing, and certificates of deposit.
Additionally, they are the sub-division of prominent or local community banks nearby the clients. These systems can be easily handled at home through an online facility. Moreover, this system is the most convenient and safe place to deposit and withdraw the client’s cash.
Essentially, they also give excellent wheel services, enabling customers to buy large-scale items and earn interest on their money. The ordinary person, over other banking systems, always prefers it. As such, it renders special care to the client’s account with good financial services.
For this reason, Citibank is a good example of a personal banking system.
What is Commercial Banking?
Commercial banking is also known as Corporate banking, as it focuses more on the corporate sector, such as government, institutions, and corporations, to earn profits.
Instead of lending contact with retail consumers, they prefer businesses and the commercial-related sector for services.
They play a notable role in the community in boosting its capital, credit, and liquidity in the market by extending new loans and lending options. Having that in mind, they also provide their services through checking and savings accounts, loans, and mortgages.
Furthermore, it renders essential investment services such as bill payments, transfers, CDs, protection of assets, loans, and safe deposit boxes. Their source of income is their clients, that is, from the interest they acquire from the client’s money. They are widely now operated through an online mode.
For a better understanding, the commercial banking system is none other than the banks we call ATMs.
Main Differences Between Personal Banking and Commercial Banking
- Personal banking deals with individuals’ needs, such as personal loans, credit, and provisions. On the other hand, Commercial Banking gives pointers for consumption and investment by lending hefty amounts as loans.
- Personal Banking covers a high-interest rate(10.5- 24 per cent), whereas Commercial Banking charges a low-interest rate (2-3 per cent) to grow the economy through consumption and investment.
- Personal Banking is an individual’s financial supporter by providing necessary finance, advice, or maintaining accounts. Commercial Banking works by accepting deposits and lending loans for investment and consumption in the case of earning profit.
- Personal Banking is also known as retail Banking and Customer Banking. Commercial Banking does all services by allowing deposits from the public and generating loans for creditworthiness, also known as depositary, Full-services Banking, or mortgagee.
- Personal Banking is considered a secured bank as they manage clients’ accounts, access credit, and check on certificates of savings or deposit accounts. Commercial Banking is highly recommended to businesses as they collect types of deposits from the public and lend loans or credit to them in return for earning profit.
Last Updated : 11 June, 2023
I’ve put so much effort writing this blog post to provide value to you. It’ll be very helpful for me, if you consider sharing it on social media or with your friends/family. SHARING IS ♥️
Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.