Banks in the United States are overwhelmingly for-profit businesses, not nonprofits. The commercial banks where most people keep checking and savings accounts are private corporations owned by shareholders, and they exist to earn a return on that ownership. The nonprofit side of the industry is smaller and made up mainly of credit unions, along with a set of depositor-owned institutions called mutual savings banks. Whether a bank is for-profit or nonprofit changes who benefits from its earnings, and that filters down into the rates and fees you see as a customer.
What Makes a Commercial Bank For-Profit
Most commercial banks are organized as C-corporations under either a federal charter from the Office of the Comptroller of the Currency or a state charter from a state banking regulator. Either way, the bank is a separate legal entity run by a board of directors whose primary obligation is to the shareholders who hold equity in the company.
As C-corporations, banks pay the standard 21 percent federal corporate income tax on their earnings, plus any applicable state taxes. Some smaller community banks have elected S-corporation status since Congress opened that option in 1997, which lets profits pass through to individual shareholders’ tax returns and avoids double taxation. S-corporation banks still have to meet federal requirements, including a cap of 100 shareholders and only one class of stock.1Internal Revenue Service. S Corporations
People sometimes think of banks as quasi-governmental because they are heavily regulated, but a charter and regulatory oversight do not change a bank’s commercial nature. What products to offer, what fees to charge, how many branches to keep open, and how many employees to hire are all decisions driven by profitability.
How the Profit Motive Shows Up in Your Account
The Spread Between Deposit and Loan Rates
The main way a bank makes money is the gap between what it pays depositors and what it charges borrowers. A bank might pay around 0.39 percent on a standard savings account while charging 7 percent or more on an auto loan and upward of 15 percent on a credit card balance.2National Credit Union Administration. Credit Union and Bank Rates 2024 Q1 That gap is called the net interest margin. As of the fourth quarter of 2025, the industry average was 3.39 percent, with community banks averaging 3.77 percent.3FDIC.gov. FDIC Quarterly Banking Profile Fourth Quarter 2025
Fees and Service Charges
Service fees are the second major income stream. Banks commonly charge monthly maintenance fees on checking accounts, and many still charge overdraft penalties when a transaction exceeds the available balance. The average overdraft fee across the industry has fallen to roughly $27, though several large banks including Capital One, Citibank, and Ally Bank have eliminated the charge, and Bank of America has cut it to $10. A federal rule effective October 2025 set a $5 benchmark for overdraft charges at institutions with more than $10 billion in assets, treating higher charges as a form of credit subject to additional disclosure.4Consumer Financial Protection Bureau. Overdraft Lending: Very Large Financial Institutions Final Rule
Other common fees cover wire transfers, out-of-network ATM use, and paper statements. Federal law requires banks to disclose every fee they can charge on a deposit account, so you should receive a fee schedule when you open the account. Many of these fees are negotiable. The FDIC encourages customers to call and ask for waivers, especially when the charges are infrequent.5FDIC.gov. Overdraft and Account Fees
Card Interchange
Every time you swipe a debit or credit card, the merchant pays a fee, and part of that fee goes to the bank that issued your card. Credit card interchange typically runs from about 1.6 percent to 2.5 percent of the transaction, depending on the card type and merchant category. Debit interchange is generally lower, and for banks with more than $10 billion in assets, the Durbin Amendment caps regulated debit interchange at roughly 21 cents plus 0.05 percent of the transaction value.6Federal Register. Debit Card Interchange Fees and Routing Across millions of daily transactions, these small charges add up.
Investment Income
Banks also earn money by investing capital they are not currently lending out, commonly in government securities and high-grade corporate bonds. That helps keep income steady when borrowing demand is weak.
Where the Profits Go
Once a bank has covered operating expenses, paid its FDIC insurance assessments, and met its tax obligations, the remaining net income belongs to shareholders. Banks return those profits in two main ways. The first is quarterly dividends, direct cash payments that make bank stocks attractive to income-focused investors. The second is stock buybacks, where the bank purchases its own shares on the open market, reducing the share count and lifting the value of each remaining share.
Profits not paid out are classified as retained earnings. Banks reinvest that money in technology, branch networks, or new lending capacity, or hold it as capital reserves. Federal regulators require banks to maintain minimum capital levels as a cushion against unexpected losses and to protect depositors if the bank runs into trouble.7Board of Governors of the Federal Reserve System. Capital Adequacy Larger and riskier institutions generally have to hold more.
The Nonprofit Alternatives
Credit Unions
Credit unions are the main nonprofit option. They are cooperative associations organized to promote thrift among their members and provide a source of affordable credit.8Office of the Law Revision Counsel. 12 USC 1752 – Definitions Members are the owners. There are no outside shareholders, so any surplus a credit union generates at year-end goes back to members, typically as lower loan rates, higher savings yields, or reduced fees.
Credit unions organized and operated for mutual purposes and without profit are exempt from federal income tax under Section 501(c)(14) of the Internal Revenue Code.9Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. The tax advantage translates into measurable differences at the counter. National data shows the average used-car loan rate at credit unions was 6.46 percent compared to 7.51 percent at banks, and credit card rates averaged 12.86 percent versus 15.29 percent.2National Credit Union Administration. Credit Union and Bank Rates 2024 Q1
Governance also works differently. A volunteer board elected by the membership runs the credit union on a one-member, one-vote basis, regardless of how much any member has on deposit. To join, you typically need a common bond with other members: the same employer, the same community, or the same organization.
Mutual Savings Banks
Mutual savings banks sit between commercial banks and credit unions. They have no shareholders and operate for the benefit of depositors, borrowers, and the surrounding community.10FDIC.gov. Mutual Institutions Depositors effectively hold ownership rights. Unlike credit unions, mutual savings banks do not have the same federal tax exemption and are generally subject to corporate income tax. Because they still lack shareholders demanding returns, they can prioritize competitive rates and community lending. Some eventually convert to stock-owned institutions, and depositors can lose their ownership interests at that point if they do not buy shares in the new entity.
What the Distinction Does Not Change
Whether your money sits at a for-profit bank or a nonprofit credit union, federal deposit protection works the same in practice. The FDIC insures deposits at member banks up to $250,000 per depositor, per bank, for each account ownership category.11FDIC.gov. Deposit Insurance Credit unions have an equivalent program through the National Credit Union Administration, which insures share accounts up to $250,000 per member.12MyCreditUnion.gov. Share Insurance If you hold more than $250,000, you can extend coverage by spreading funds across different ownership categories or across multiple institutions.
Your tax treatment as a customer is also the same either way. Interest earned on savings accounts, certificates of deposit, and money market accounts counts as ordinary income on your federal return. The institution must send you a Form 1099-INT for any year it pays you $10 or more in interest, but you owe tax on all interest earned, even amounts too small to trigger the form.13Internal Revenue Service. About Form 1099-INT, Interest Income For 2026, ordinary income tax rates run from 10 percent to 37 percent depending on your total taxable income.14Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill Dividends you receive from owning bank stock are taxable too, though qualified dividends may be taxed at the lower capital gains rate.