Investment Banking vs. Commercial Banking: An Overview

Though commercial banks and investment banks are both critical financial institutions in a modern economy, they perform very different functions and require different kinds of employees. Commercial banks are what most people think of when they hear the term "bank." They accept deposits, make loans, safeguard assets, and work with clients of all stripes.

Investment banks, on the other hand, provide services to large corporations and institutional investors. An investment bank may help in merger and acquisition (M&A) transactions, issue securities, or provide financing for large-scale business projects.

On the whole, a career in investment banking is more competitive, tends to pay more, and is seen as more glamorous than a career in commercial banking. Investment banks tend to be more selective of their candidates and demanding of their employees, many of whom are high-level analysts. That said, each path can result in a rewarding, long-lasting, and high-earning career.

Commercial Banking

There are many different career choices in either field. Commercial banks offer such positions as tellers, sales associates, trust officers, loan officers, branch managers, and technical programmers.

Commercial banking salaries vary greatly depending on the position in question. According to the U.S. Bureau of Labor Statistics (BLS), the median pay for a bank teller in 2017 (the most recently available data) was $13.11 per hour or $28,110 per year. The research and placement giant Robert Half stated in its 2017 Salary Guide that a commercial lender with one to three years of experience could earn a salary between $59,000 and $92,750.

Meanwhile, private bankers with five or more years of experience, many of whom got their start as personal bankers or loan officers, could expect salaries between $88,750 and $124,250, according to Robert Half.

Hours worked is the one area where commercial bankers have the edge on investment bankers. Though there are certainly some exceptions, most investment banking professionals work exceptionally long and busy hours. By contrast, commercial bankers work standard weeks (the expression "banker's hours" only applies to the commercial side).

Even higher-level commercial bankers, such as trust officers or private bankers, rarely work more than 50 hours a week. Those with families or those who just enjoy their time off and want to make it to happy hour are probably best suited for a career on the commercial side.

Investment Banking

Investment banking positions include consultants, banking analysts, capital market analysts, research associates, trading specialists, and many others. Each requires its own education and skills background.

A degree in finance, economics, accounting, or mathematics is a good start for any banking career. In fact, this may be all you need for many entry-level commercial banking positions, such as a personal banker or teller. Those interested in investment banking should strongly consider pursuing a Master of Business Administration (MBA) or other professional qualifications.

Great people skills are a huge positive in any banking position. Even dedicated research analysts spend a lot of time working as part of a team or consulting clients. Some positions require more of a sales touch than others, but comfort in a professional social environment is key. Other important skills include communication skills (explaining concepts to clients or other departments) and a high degree of initiative.

Investment bankers are among the best-paid professionals in the business world, which is one of the main reasons such positions attract so many applicants. A first-year investment banking associate can earn a base salary that ranges as high as $95,000 to $125,000 per year. Associates with a decade or more of experience likely earn between $175,000 and $250,000 at major institutions.

For the truly talented and dedicated, an investment banking vice president or managing director can earn upward of $500,000 or more per year.

However, it is not uncommon for an investment banking associate to work between 65 and 75 hours a week, and sometimes that does not even cover the enormous amount of research required. Even if a bank does not require junior bankers to come into the office on weekends—Citigroup famously made this change in 2014—it will still expect employees to be accessible via email and phone.

Key Takeaways

  • Investment banking is best for highly ambitious people who place less emphasis on their lives away from the office.
  • Commercial banking is comparatively less stressful and less competitive, though there are some exceptions.
  • If you want a high salary and you are willing to travel a long, competitive road, then investment banking is probably the right choice.
  • If you want to balance work and life a little more and enjoy a more colloquial social interaction with customers, then commercial banking might be a better fit.