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Sujai Adithya
Business Development and Banking & Financial Services Expert
Asked a question last year

What is a commercial bank?

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Sujai Adithya
Business Development and Banking & Financial Services Expert

A commercial bank is the type of bank most commonly used by everyone. It offers account services, accepts deposits3 and offers various other basic financial products like certificate of deposit (CDs). The largest source of funds for banks is through deposits. Commercial banks generate revenue by offering loans and earning interest income from those loans. The types of loans3 a commercial bank offers can vary, as it may specialize in just one or a few types of loans. 

Deposits from customers, into various types of accounts3, provide banks with the capital to offer loans. This way, customers lend money to the bank and earn interest. However, the interest rate paid by the bank on money they borrow is less than the rate charged on money they lend. The amount of money earned by a commercial bank is determined by calculating the difference between the interest earned from the loans issued and the interest paid for deposits, which is known as the net interest income4.