What Is a Niche Bank?
Niche banks cater to and serve the needs of a certain demographic segment of the population. Niche banks typically target a specific market or type of customer and tailor a bank's advertising, product mix, and operations to this target market's preferences.
- Niche banks are banks that have a specific purpose, focused on a particular subset of the population.
- A niche bank’s entire operations, marketing, and product mix are all developed to cater to the target market’s preferences.
- These banks are generally commercial banks and customers should ensure it is Federal Deposit Insurance Corporation (FDIC) insured.
- An example of a niche bank includes Golf Savings Bank, which sponsors golf tournaments and offers up to $10,000 for PGA members who score a hole in one and have a specific account at the bank.
How a Niche Bank Works
Niche banks are usually types of commercial banks, which accept deposits, extend loans, and offer basic financial products like certificates of deposit (CDs), checking, and savings accounts.
Most niche and commercial banks stand in contrast to investment banks, which specialize in larger and more complex financial transactions. These can include underwriting, being an intermediary between a securities issuer and the investing public, facilitating mergers, and other corporate reorganizations, and acting as a broker and/or financial advisor for institutional clients.
If you are considering a niche bank, it is important to make sure it is Federal Deposit Insurance Corporation (FDIC) insured. Created in 1933, the FDIC insures deposits in the U.S. against bank failure. Today, the FDIC insures deposits of up to $250,000 per institution for all member firms.
The FDIC usually covers 100% of member checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts. While the FDIC may at times cover aspects of some trust accounts and individual retirement accounts (IRAs), they do not cover investment products, such as mutual funds, annuities, life insurance policies, stocks, or bonds. Nor are contents of most safe-deposit boxes included in FDIC coverage either.
It is also important to ensure that the niche bank is a separately chartered entity and not affiliated with a bank where you currently have deposits. This is due to the fact that the FDIC generally limits deposit insurance to $100,000 per person per chartered institution.
Example of Niche Banks
Niche banks have moved beyond just mobile- or internet-only banks, such as Simple. Those banks are no longer specific enough to be considered niche, as they’ve become more prevalent.
A good example of a niche bank is the Golf Savings Bank, which sponsors golf tournaments and offers up to $10,000 for PGA members who score a hole in one and have a specific account at the bank.
Other examples of niche banks include Reid Temple AME Church Federal Credit Union, which has convenient hours before and after church on Sundays, along with BowieBanc, which offered an automated teller machine (ATM) card with a picture of David Bowie before it shut down.
Meanwhile, Rhode Island-based Admirals Bank is a niche lender focused on septic systems. Oklahoma’s Bank 2 is a community bank that offers loans for manufactured homes.