Banks differ in the services they provide and in their form of ownership both within and across countries. Financial experts sometimes use the word bank to refer only to a commercial bank. Other institutions, such as savings banks, savings and loan associations, and credit unions, do not perform all the functions of commercial banks or are more restricted in performing them. These institutions are often called thrift institutions, or simply thrifts, because a chief purpose is to encourage saving. Some countries simply divide banks into deposit-taking institutions and credit institutions.

Most countries also have agencies called central banks. Although they are called banks, they do not accept deposits or lend money to the public. Other kinds of banks include investment banks and multilateral development banks.

Commercial banks are the most important banks in terms of assets. They offer a wide range of services, including checking and savings accounts, loans, and individual retirement accounts (IRA's). IRA's accumulate interest tax free until funds are withdrawn. Commercial banks traditionally served businesses, but they now meet the financial needs of individuals as well.

A commercial bank is owned by stockholders who buy shares in it. In return for acquiring a bank's stock, stockholders expect the bank ultimately to pay them cash dividends from its profits. In the United States, nonfinancial firms cannot own commercial banks, but most other countries permit such ownership.

Savings and loan associations are another important type of deposit-taking institution. Savings and loans-often called building societies or S & L's-were established to help people purchase homes. For a long time, they were the chief source of home mortgages. Today, S & L's have become more diversified and offer a variety of services, including checking accounts, IRA's, money market accounts, and consumer and business loans. Several large building societies in the United Kingdom, for example, have expanded into other types of banking or converted to commercial banks.

In the past, almost all savings and loans were owned and operated by their depositors. But today those owned by stockholders are far more important than those owned by depositors.

Savings banks were created in the United States in the early 1800's as charitable institutions to provide a safe place for poor working people to save for retirement. Originally, almost all savings banks were mutual savings banks, which are operated by a board of trustees who elect their own successors. Since the mid-1980's, many savings banks have become stock savings banks. These banks are operated by a board of directors who are elected by shareholders. Savings banks offer savings and checking accounts and IRA's. They also make personal and business loans. Savings banks offer savings and checking accounts and IRA's. They also make personal and business loans.

Credit unions are formed by people with a common bond. For example, they may work for the same company or belong to the same church. The members pool their savings. When one of them needs funds, he or she may borrow from the credit union, often at a lower rate of interest than from another institution. A credit union distributes its profits to members as dividends on their accounts. Credit unions are important in the United States and Canada. Federal, state, and provincial laws limit credit unions to meeting the needs of their members, and so they do not typically lend to businesses.

Investment banks, also called merchant banks, purchase newly issued stocks and bonds from corporations and governments. They then resell the securities to investors in smaller quantities. An investment bank makes a profit by selling securities at a higher price than it pays for them. The first merchant banks were formed by British merchants in the 1800's. In the 1930's, the U.S. government prohibited any institution that accepted deposits and made loans from engaging in investment banking. But in the 1980's, the government began to permit large commercial banks to buy and sell securities within limits. In 1999, it removed the barriers separating investment banking from commercial banking.

Central banks, which in most countries are government agencies, perform financial services for national governments. Their chief responsibility is to help stabilize interest rates, prices, and overall economic activity. Central banks do so by influencing the money supply, which is the total quantity of money in a country, including cash and bank deposits.

Central banks also perform a variety of services for other banks. For example, they serve as a lender of last resort-that is, they make emergency loans to banks that need cash for unexpected deposit withdrawals. Central banks also handle the clearing of checks, the process by which banks settle claims against one another that result from the use of checks.

The functions of central banks differ from country to country. In the United States, the Federal Reserve System, often called simply the Fed, is the central bank. The Fed helps regulate and supervise commercial banks. But the Bank of England, the United Kingdom's central bank, does not regulate banks. The Monetary Authority of Singapore carries out most functions of a central bank in that country. However, unlike the Fed and the Bank of England, it does not issue currency.

Multilateral development banks are international financial institutions owned by and funded by member nations. The purpose of these institutions is to provide funds to developing countries for various projects that promote economic and social progress. Although most of the banks channel most of their funds to public projects, some funding is also provided for private ventures.

There are more than 30 development banks worldwide. The five principal banks are the African Development Bank; the Asian Development Bank; the European Bank for Reconstruction and Development; the Inter-American Development Bank; and the World Bank, which is the largest. Every year, these banks commit billions of dollars to projects in developing countries. The multilateral development banks provide not only loans but also grants, technical cooperation, capital investment, and other types of assistance.

Kinds of bonds. There are several kinds of bonds. Mortgage bonds give the investor a claim on some or all of a company's property. Such a claim, called a lien, is given as security in case the loan is not repaid when due. Debentures are bonds that are not protected by a lien. Collateral trust bonds are secured by property called collateral (often stocks or bonds) deposited with a trustee. Income bonds promise to repay principal but to pay interest only when there are earnings. Callable bonds may be redeemed by the issuing corporation under stated conditions before maturity. Serial bonds mature in relatively small amounts at stated intervals. Municipal bonds are issued by state or local governments. Inflation-indexed bonds protect bondholders from being repaid in dollars whose value has been reduced by inflation (rising prices). The amounts investors receive are adjusted to correspond to current market prices.