Investment Banking vs. Commercial Banking

 An Overview of Investment Banking vs. Commercial Banking

Author: Nicolas Palmer
Nicolas Palmer
Nicolas Palmer

Student at Boston College Studying Finance and Accounting for Finance and Consulting

Reviewed By: Isabel Lin
Isabel Lin
Isabel Lin
Isabel Lin is a Computer Science and Economics student at Brandeis University, set to graduate in 2026. At Wall Street Oasis, Isabel progressed from a Financial Research Intern to an Editor Specialist, demonstrating her ability to analyze and communicate complex financial information effectively. In addition to her academic and professional endeavors, Isabel has achieved notable success in athletics and music, being a U.S. Junior Olympic National Gymnast and a Carnegie Hall Pianist. These accomplishments reflect her discipline and versatility, which she brings to her work in financial markets and computing.
Last Updated:March 5, 2024

What Is Investment Banking vs. Commercial Banking?

Banks are a critical part of our economy and are generally separated into two different classes:

  • Commercial banks
  • Investment banks

While both are important financial institutions, they perform very different functions. 

Investment banking and Commercial banking have very different types of operations and employees. Therefore, if you want to pursue a banking career, you must know all the differences between these two types of banks.

A career in commercial banking is a completely different lifestyle than investment banking. Investment bankers work long hours and get paid extremely well, whereas commercial bankers have a better work-life balance but are paid less.

Investment banking is often seen as a more glamorous lifestyle; however, it is far more competitive than commercial banking. It is very hard to land a job in IB; once you get in, it gets more challenging. The environment is very cutthroat, and you will always be competing.

Commercial banking is less competitive, but you will still have to work hard. For example, you could be dealing directly with customers or other banks. On average, you will not have to work as many hours as an investment banker, but you will have a much lower salary. 

The two types of banks have very different functions.

  • Commercial banks: Deal with the common public and handle transactions like lending and deposits to their clients. These banks are necessary for the economy because everyone needs to deposit and withdraw money from their bank account. 

Investment banks are highly important to our economy because their performance is directly related to the performance of our financial markets. Some biggest investment banks include:

Key Takeaways

  • Investment banking and commercial banking serve different types of clients and offer distinct services.
  • Investment banking is highly competitive and demanding, with long hours and high salaries, while commercial banking offers better work-life balance but lower pay.
  • Investment banks work with corporations and investors, offering services like underwriting, capital raising, and mergers and acquisitions. Commercial banks serve the general public, providing deposit, loan, and basic financial services.
  • Investment banks are vital to the financial markets, while commercial banks mobilize savings and support small to middle-market businesses.
  • Career paths in investment banking and commercial banking offer different roles and compensation levels, with investment banking being more lucrative but also more demanding.

What is commercial banking?

Unlike investment banking, commercial banks deal with the general public and handle transactions such as customer deposits, withdrawals, and loans. Commercial banks are owned publicly, privately, or by a combination of the two. As a result, they help mobilize savings across the economy. 

They are devoted to serving smaller, middle-market businesses with financial needs. They can also support clients with treasury functions, basic cash management services, foreign exchange support, and payment processing capabilities. 

These banks also offer lending solutions for their commercial borrowers, which include overdrafts, revolving lines of credit, term loans, commercial mortgages, and acquisition-related financing. 

Commercial banks generally operate under a federal government charter. Banks that operate under a charter need to become members of the National Reserve System, which creates stricter capital requirements and reporting measures. 

One of the most important requirements is the carrying of deposit insurance. This regulation offers protection for consumers if the bank fails. The insurance usually covers deposits up to $250,000. 

There are many different career choices in both the investment banking field and the commercial banking field. 

The commercial banking field offers many different positions within the bank. These positions include:

  • Tellers
  • Sales associates
  • Trust officers
  • Loan officers
  • Branch managers
  • Technical programmers

Each of these positions plays a unique role within the commercial banking industry. They also all have varying salaries. For example, the median pay for a teller in 2020 was $32,620 per annum. 

Meanwhile, private bankers with a lot of experience (5 years or more) who started as personal bankers or loan officers can expect salaries between $117,318 and $224,098 in New York City. 

The total hours worked by an employee in a commercial bank is one of the advantages it has over investment banking. Of course, there may be some exceptions, but most professionals in investment banking work incredibly long hours. 

Commercial bankers, on the other hand, work standard work weeks. Even higher-level commercial bankers, such as trust officers or private bankers, usually do not work more than 50 hours weekly. 

Compared to those in investment banking who work almost 100 hours a week, this amount of work offers a much better work-life balance. If you have a family or enjoy time off, a career in commercial banking might be better for you. 

What is investment banking?

Investment bankers assist companies, institutions, and other large entities, such as governments, with the management of their money. IB is designed to offer a list of different options to clients to help them succeed financially. 

These banks assist their clients by underwriting equity and debt securities, creating capital, and issuing stocks. They are also usually involved in mergers and acquisitions. 

One of the most important functions of an investment bank is issuing stock for companies. This is known as an initial public offering (IPO). When a company makes its inventory available for the first time, they don’t always see the worth of its business. 

Investment bankers help them determine the value of their business so they can price their shares properly during the IPO. 

Investment banks also act as advisors for companies by helping them determine if they should trade or make transactions with other companies. 

Similar to commercial banking, there is a list of positions in an investment bank. These positions include:

  • Consultants
  • Banking analysts
  • Capital markets analysts
  • Research associates
  • Trading specialists 

These are mainly entry-level positions. As you climb the ladder in the bank, you can get promoted to Vice President and then managing director after you are highly experienced. 

To start a banking career, you should pursue an undergraduate degree in finance, economics, accounting, or mathematics. This is all you need for a position in commercial banking, but to get a job in an investment bank, you should consider an MBA. 

Working in a bank requires great people skills. Even research analysts spend a lot of time working as a team or providing consulting services to clients. Communication skills are also important because you will need to explain concepts to other departments.

Regarding salary, investment bankers are among the highest-paid professionals in the world, which is one of the main reasons it attracts so many applicants. For example, an associate in New York City can make anywhere from $118,371 to $224,449. 

The average workweek for an investment banker is around 65 to 75 hours a week and can be even higher for entry-level analysts. Most banks do not require junior bankers to come in on weekends, but some expect employees to be accessible via email and phone. 

A career in investment banking rewards an exceptionally high salary but does not offer a good work-life balance. 

Key Differences Between Investment Banking and Commercial Banking

Investment banks differ highly from Commercial banks in terms of function, types of employees, work environment, and salary. 

We have seen how they differ in these ways, but there are other key differences between the two types of banks. 

Some of the main differences between them are:

1. Clientele 

The primary difference between investment banking and commercial banking is the type of clients that they each serve. Investment banks serve large, publicly-traded corporations, and commercial banks serve smaller, middle-market clients. 

Commercial banks deal with a large quantity of people i.e. the general public who have low amounts of money, whereas investment banks deal with fewer people but with larger amounts of money.

2. Services 

Another major difference is the services offered by the banks. Investment banks handle large amounts of money and help advise their clients about transactions. Commercial banks deal with day-to-day financial transactions and small credit requests for non-public borrowers. 

3. Performance measure

Another key difference is that the performance of investment banks is tied to the stock market’s performance. The performance of commercial banks, on the other hand, is connected to the credit demand of our economy and the economic well-being of our economy. 

Some more differences between the two lie in the banks' fundamentals. These differences include

  • Function: Investment banks serve as financial intermediaries set up to provide investment and advisory services to companies. Commercial banks offer banking services to the general public.
  • Type of service: Investment banks offer customer-specific services, whereas commercial banks offer standardized services
  • Customer base: The customer base in a commercial bank is significantly higher than in an investment bank
  • Source of income: Investment banks generate income from fees and commissions. Commercial banks generate income from interest and fees.

Overall, the primary difference between these two financial intermediaries is the audience they serve and the area of their business. 

Investment banking vs. commercial banking overview

Commercial banks are what most people think of when they hear the word “bank”. These are the typical banks where you can deposit money, take out loans, and talk directly to the workers. In addition, commercial banks now work with the general public. 

Investment banks are not your typical banks. Instead, these institutions work with large corporations and institutional investors. They help in:

  • Merger and acquisition (M&A) transactions
  • Issue securities
  • Provide financing for large-scale business operations

In general, a career in investment banking is more glamorous, highly competitive, and better compensated than a career in commercial banking. Because of this, the demand to become an investment banker is very high.

These banks are very selective of their candidates and demand a lot from their employees. Therefore, it is one of the most difficult jobs to obtain and work at. The starting level at an investment bank is an analyst, who must already be a highly-skilled worker. 

Analysts are usually tasked with doing research and the dirty work that the associates and managers do not want to do, such as countless hours in:

  • Excel
  • PowerPoint 
  • Market research

A career in commercial banking offers a better work-life balance but not as high of a salary. As a commercial banker, you work with many clients in the general public. 

Investment banks earn their income through underwriting commissions and service fees. In contrast, commercial banks earn their income from interest on loan payments and the difference between the lending and deposit rates.

Investment banking play a major role in cashflow through services provided to private enterprises, security transactions and other services, commercial banks are responsible for basic banking services, but this doesn't deny the fact that commercial banks influence the monetary conditions in an economy to a greater extent.

Investment Banking Vs. Commercial Banking
Investment Banking Commercial Banking
Investment banks are private and also Deals with private enterprises  Commercial banks can be public or private and mostly deals with public money
Investment banks provide services like capital valuation, issuing shares, debt financing etc. They don't offer basic banking services like commercial banks such as money transactions, lending loans Commercial banks offer basic banking services like money transactions, deposits, withdrawals, extending loans to private and public enterprises, commercial mortgages etc.
Investment banks serve as a link to financial markets for private enterprises Commercial banks do not generate capital through financial markets, instead they generate capital by extending loans to private and government enterprises.
Investment banks are at a greater risk from fluctuations in monetary conditions Commercial banks are less susceptible to fluctuations in prices and economic conditions
Investment banks are less regulated by legal authorities Commercial banks are more regulated by legal as well as government authorities. They cannot surpass the interest limits set by the central bank.

The services provided by a commercial bank include managing deposits, mortgage loans, and lending loans. They also handle overdrafts, promissory notes, locker facilities, internet banking, mobile banking, and card facilities. 

Some biggest commercial banks include the:

Both of these career paths can result in a rewarding and long-lasting career. The main difference between them is the function and target audience of the banks. 

Career Opportunities in Investment Banking and Commercial Banking

Consider many things if you are thinking about a career path in banking. First, there are many different roles in each type of bank. 

In the investment banking sector, some major roles are analyst, associate, vice president, and managing director. A breakdown of these roles is as follows:

A) Analyst

The analyst is the basic starting job in investment banking. An analyst's main role is to create financial models, perform a company analysis, and do due diligence. They are also responsible for creating pitch books to pitch investments to managers. 

You must have at least one year of analyst experience before applying to become an associate. 

B) Associate

The main job of an associate is similar to that of an analyst, except they are also responsible for acting as an intermediary between junior and senior bankers. You are required to be an associate for three to four years before you can be promoted.

C) Vice President

The role of the vice president is to complete pitch books and manage client relationships. Both are easy transitions for an associate who has mastered the analytical side but still needs to gain expert social skills. 

D) Managing Director

Managing directors are highly experienced candidates representing the firm in foreign countries and important meetings. This role has the power to make strategic decisions for the whole company.

In terms of compensation, investment bankers make much more than commercial bankers. An entry-level analyst can earn around $70,000 as a base salary, increasing to approximately $100,000 as an associate. A vice president would accumulate about $250,000. 

There are also many roles in commercial banking that offer various specializations. These roles include loan officers, mortgage bankers, credit analysts, trust officers, and branch managers.

  • Loan officer: Responsible for organizing loan contracts with clients
  • Mortgage banker: Similar role as a loan officer but is responsible for more direct client interaction
  • Credit analyst: Analyzes potential borrowers' credit to determine if they are worthy of receiving loans
  • Trust officer: creates financial plans for clients in various fields.
  • Branch Manager: manages the bank's day-to-day operations, keeps track of the bank's financials, and sets goals for the branch.

The compensation for commercial bankers is not as high as for investment bankers, but it is still a rewarding salary. Loan officers make, on average, $63,270 per year. Credit analysts make around $73,650 annually, and financial managers earn $129,890 annually. 

Free Resources

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