A comprehensive guide to how local banks benefit your family, your business, and your community.
Community banks are woven into the fabric of every town, from big cities like New York to the smallest rural community. Sometimes they exist as architectural ghosts, grand buildings with hyper-local names such as The Bowery Savings Bank in NYC, named after the thoroughfare and neighborhood it sits in. These landmarks, regardless of their present occupants, invite us to imagine a time when “Small Business Saturday” wasn’t an annual rallying cry to support local merchants with holiday shopping, but a way of life. People shopped locally, banked locally, socialized locally. There was no other way. Community banks opened to serve local residents and businesses, providing essential financial services that couldn’t be found anywhere else.
Today, there are more banking options than ever before, but local financial institutions are just as–perhaps even more so–crucial to the success and vibrancy of the communities they serve. We should know: BankBound is a longtime partner and supporter of community banks and credit unions. If you’re not already a “bank local” devotee, read our comprehensive guide to the benefits of community banks and credit unions. We feel confident you’ll be ready to move your money by the time you finish this article. If you’ve been a proud local bank customer for years, share your experiences and reasons for banking locally with us. We may publish some of them at the bottom of this post.
The megabank model first began to take shape in 1998 when Citicorp and Travelers Group merged to create the world’s largest financial services company. Chase Manhattan followed suit two years later by acquiring J.P. Morgan. The idea took off and one by one the larger financial institutions scooped up smaller banking names. By 2009, four megabanks had emerged to dominate the financial services industry: Citigroup, JPMorgan Chase, Bank of America, and Wells Fargo. These new megabanks leveraged their size and full menu of financial services to take advantage of rising home prices and demand for mortgage bonds. When the housing bubble burst in 2008, the resulting financial crisis revealed all of the unsavory details of how these megabanks were run and regulated. Since then, megabank scandals have continued to appear in the news. Over the last two years, Wells Fargo has been accused of numerous wrong-doings including creating fake accounts in their customers’ names, charging customers for auto insurance they did not need, and modifying existing mortgages without their customers’ consent.
Now banks are figuring out that bigger isn’t necessarily better. Larger banks have new rules to follow and face more scrutiny from regulators. Many megabanks are still paying off billions of dollars in fines for breaking regulations. Some, like Citigroup, are slowly dismantling as they adapt to heightened regulations. It’s no secret that megabanks are out of favor with the American public. All four of the top megabanks–Wells Fargo, Citibank, Chase, and Bank of America–routinely make the list of worst companies in America. Why wouldn’t they? Constant scandal, higher fees, and fewer free accounts make megabanks pretty unlikable. Shouldn’t your money go to a trustworthy institution with more accountability to its customers and community?
Consumers Benefit From Banking Locally
For most consumers, a local bank or credit union is the best banking choice. You may be wooed by the advertisements of larger banks, but when it comes to keeping more money in your pocket the smart choice is local banking. Community banks and credit unions benefit individuals in seven important ways:
- Lower Fees: Local banks and credit unions offer more free accounts and charge fewer fees. According to Money-Rates.com, 43 percent of small banks’ checking accounts had no monthly maintenance fees compared to only 25 percent at large banks. Overdraft fees and ATM fees continue to rise in the megabank world as well. JP Morgan, Wells Fargo, and Bank of America have each reported making nearly $2 billion a year in overdraft charges.
- Personalized Attention: It’s not unusual for a customer to be offered a cookie or cup of coffee when entering their local community bank branch. Local banks value each of their customers as individuals, often greeting them by name and asking about their families and lives. Local banks pride themselves on serving their neighbors and take the time to give customers the attention they need.
- Full Menu of Services: Megabank advertising suggests they have the upper-hand when it comes to choice, but that simply isn’t true. Most community banks offer the same services and products as their competitors, including online and mobile banking. Many local financial institutions also offer unique programs tailored to the needs of their local customer base.
- Higher Quality Service: Smaller banks tend to have less employee turnover than larger institutions. Employees at community banks form deeper relationships with their customers, leading to higher quality service and flexible decision making.
- Higher Ethical Standards: As a member of the community, local banks and credit unions are held to a higher standard than national chains. They know that the policies of their bank and the behavior of their employees has a direct effect on the local community. Unlike megabanks that use their assets to invest in national and international industries, most community banks invest in small, local businesses.
- Local Decision Making: By serving a smaller region, local banks are able to customize their services and products to match the needs of their specific community. When it comes to offering loans, community banks tend to look at the individual’s character and personal qualifications rather than just entering a credit score into an application.
- Stability: The banking world is rife with megabank scandal and the fallout affects consumers like you. In response to recent scandals and enormous legal bills, Wells Fargo is closing all its branches in three states. Community banks, on the other hand, are deeply rooted in their communities and plan to stay. Many local banks and credit unions have served their areas since the late 1800s.
Businesses Benefit From Banking Locally
If you’re a small business looking for a bank, remember that local banks are small businesses just like you. Who better to understand what a small business needs to succeed? Community banks offer many advantages for small businesses:
- Local Decision Making: Community banks and credit unions use their intimate knowledge of the area to make loan decisions. Their insight into local market conditions can lead to approval of small business loans that a national bank may not value. According to the Institute for Local Self-Reliance, the largest 20 banks in the country commit only 18% of their commercial loans to small businesses.
- Relationship-Based Banking: As a local business owner, you’re known throughout the community. Small banks factor what they know about your character and personal qualifications into loan decisions rather than just punching a credit score into an automated application.
- Faster Decisions: When you have broken equipment, your business shouldn’t have to suffer while you wait for a loan. Local banks and credit unions make their decisions in-house with less red tape and hoops for you to jump through. Faster loan decisions keep your business on track and turning a profit.
- Local Connections: Your community bank and business banker are a valuable source of networking opportunities for small businesses. Connect with local suppliers, service providers, and potential clients. These contacts fuel the local economy and grow small businesses like yours.
- Collaborative Lending: Small banks and credit unions may not have the lending power of megabanks, but they know how to work as a team. Through the collaborative credit lending process, community banks join together to offer loans to more small businesses. This networking of community banks allows them to serve more members of their communities and helps you get the funds you need to keep your business thriving.
Local Economies Benefit From Banking Locally
Many community banks and credit unions have kept their doors open even as national banks moved into town. They’ve continued to serve the people and businesses in their local communities by providing personalized service, flexible loan terms, and lower fees. According to the Independent Community Bankers of America, despite the huge number of megabank branches across the country, community banks still provide nearly 50 percent of small business loans. In rural areas, the impact of community banks and credit unions is even greater as they provide 82 percent of national agricultural loans. That’s money directly benefiting your community. Large banks send your money out to branches in other states and across the country in the form of loans and investments. When you bank locally, your community bank is channeling your money back into your neighborhood. Your money is invested locally, growing your local economy and providing loans to your neighbors.
Not only is your neighborhood bank putting money back into your community with small business loans, but it may also pay your neighbor’s salary. According to the Independent Community Bankers of America, community banks employ over 765,000 Americans. While big banks keep the majority of their upper-level staff working in far-off corporate headquarters, community bank CEOs and other top staff work in main offices located in your community. From the highest-level staff and all the way down the ladder, community banks and credit unions are fully invested in the local communities that they serve. Banking policies are made by the people who live in your community and know it best.
Community bank and credit union profits stay local. Money earned is funneled right back into the community by means of salaries, investments, capital improvements, and discounted services. Local banks also give back with charitable donations to local organizations and financial support of youth athletic programs. Community banks know that their success is tied to the health of the local economy. By banking locally, you are helping your neighbors and local businesses thrive.
How to Choose a Local Bank or Credit Union
Now that you know why local banking is the smartest choice for your family, your business, and your community, the only question left is, “how do I choose?” Community banks and credit unions both make great financial partners. Compared to megabanks, local institutions offer lower fees, more free accounts, relationship-based banking, and personalized products and services. When you’re ready to make the switch to a local bank, you’ll want to visit the credit unions and community banks in your neighborhood. Your money is protected at both institutions with insurance of $250,000 per account. Both local banks and credit unions have your community’s best interests at heart.
Local banks are for-profit businesses
Profits make their way back into the community through employee salaries and local spending. No membership is required to bank here, and there are often convenient locations around your community. Many banks boast newer technology and mobile services than credit unions, but that, of course, varies by specific institution.
Credit unions are nonprofit organizations
Profits earned by the credit union are returned to members in the form of reduced loan rates, fewer fees, and other perks like surcharge-free ATM usage. Credit unions are financial cooperatives that exist to serve a specific community of people, and you must be a member. Each credit union is different and membership can be determined by qualifications such as an employer, school, or church affiliation. Credit unions may offer lower fees and higher interest rates on their deposit accounts than banks, but those decisions vary by location.
Local Banking v. Megabanks
Credit unions and local banks aren’t going away. They work hard every day for their communities because they depend on the health of their local economies to keep them running. Megabanks aren’t as worried about losing one of their 5,800 retail branches so their decisions aren’t community-based. When you choose a local bank or credit union, you’re making a smart financial decision for yourself or your business. Lower fees, better service, free accounts, and local decision-making benefits your financial bottom line and makes your banking experience more enjoyable. Your business benefits from local insight, relationship-based policies, and networking opportunities.
The news is filled with continual scandal from megabanks as they repeatedly break regulations and betray their customers’ trust. Even their legal behavior is questionable as they use consumers’ assets to make speculative investments or invest in environmentally unfriendly oil, gas, and chemical industries. When you support your local bank, you support your community. Your money stays close to home and is rooted in the local economy. Your local bank account or loan helps fund small business loans, pay your neighbor’s salary, and support local charities. Your money stays in the community and makes it a better place to live.
Speak up For Local Banks!
Help us spread the word about the benefits of banking locally by sharing your positive experiences with community banks and credit unions. Whether you’re a longtime credit union member or recently made the switch to a community bank, contact us to tell us your reasons for keeping your money in your community. We may publish it to this post!