Difference between Bank and Financial Institution

In any given economy, there are numerous financial institutions - including banks, insurance companies, credit card companies, investment funds, consumer finance companies, etc. Even though a bank is a financial institution in itself, it differs from other financial institutions mentioned above by a significant extent. The most prominent difference between banks and other financial institutions is the fact that they provide the facility of depositing cash by resorting to savings account - something which most of the non-banking financial institutions are not entitled to do.

Financial Institutions

One has to first understand what financial institutions are, because bank in itself is one of the various financial institutions that exist in an economy. Basically, the term financial institutions encompasses several economic setups which provide financial services to its members or clients. This includes various deposit taking institutions such as banks and credit unions, as well as non-banking institutions such as insurance companies, investment funds, brokers, etc. Most of these financial institutions are regulated by the government. The most important function of these financial institutions is to channelize funds between lenders and borrowers indirectly.

Banks

As we mentioned earlier in this write-up, a bank is a financial institution in itself - a deposit taking financial institution to be precise. As with most of the other institutions listed above, even banks acts as financial intermediaries. Basically, banks allow consumers deposit money in savings accounts and lend the same money in form of various loans. Banks are among the most strictly regulated financial institutions in any economy. While the basic concept of a bank is same in all the countries, the restrictions on these banks may differ from one country to another.

Difference between Bank and Other Financial Institutions

It is a tough task to compare bank and financial institutions owing to the fact there exist several financial institutions, and each of these differ from banks by a significant extent. Basically, differentiating between banks and financial institutions is similar to comparing a deposit taking financial institution with a non-deposit taking financial institution. (If that criteria is taken into consideration both financial set-ups differ from each other on the basis of depositing facility, which is only provided by banking institutions as opposed to their non-banking counterparts.) That's true to a certain extent, but it is by no means complete.

Even though banks are deposit taking financial institutions themselves, they can at times differ from other deposit taking financial institutions as well. For instance, credit unions also allow consumers to deposit (or borrow) money, but in order to avail this facility you need to be a member of this credit union and by becoming a member of the credit union you automatically become one of its owner. Yet another noteworthy difference between a bank and a finance company is the fact that former indulges in various business transactions, savings as well as investment, while the latter mainly focuses on investment and stabilization of currency.

When it comes to financial matters, it is very important to understand the basics of various tools of savings and tools of investment. The large-scale development that the economy has undergone over the last few years has also made it more vulnerable to several economic issues. In such circumstances, it is better off to ensure a no-problem future for yourself, and that's exactly where knowledge about the basics of economics will come handy for you.