If you’re looking for a new financial institution, don’t assume a national bank is your best bet. Although big banks might have a strong presence in your area, community banks give the big guys a run for their money.
Local banks are known for providing competitive rates on deposit accounts and loans, as well as for their superior customer service. Because they are community-based, however, a local bank might be limited on the services they offer nationwide. Here are the pros and cons of working with a community bank.
5 Pros of a Community Bank
1. Local Banks are More Flexible Lenders
National banks typically have stricter lending guidelines. These guidelines can often make it harder for customers with less-than-perfect credit scores or lower incomes to qualify for loans. Local banks, on the other hand, can establish their own guidelines, often to the benefit of their customers.
Community banks might “make exceptions for customers based on circumstances and needs, and typically offer more flexibility and less restrictions on small business loans,” said Harrine Freeman, CEO of H.E. Freeman Enterprises, a credit repair and financial counseling service. “Some community banks will consider your character, family history and banking history when making loans, not just credit score.”
2. Local Banks Have Lower Fees and Better Rates
If you’re growing your nest egg and preparing for the future, a community bank might be a better fit because these financial institutions typically have lower fees on banking products and better interest rates on deposit accounts and loans, so you can keep more of your hard-earned money. On this, Freeman added:
“A local bank may waive fees for out-of-network ATMs, charge no fees for using branch tellers or receiving personalized care, and it’s easier to negotiate fees.”
A 2015 Banking Landscape Report by WalletHub compared average monthly fees on checking accounts at various financial institutions. Compared to national banks, which have an average monthly fee of $15.09, community banks charge considerably less with an average monthly fee of $5.72.
3. Local Banks Have a Strong U.S. Presence
You can find a community bank in just about every city or town in the U.S. The Independent Community Bankers of America represents more than 6,000 community banks alone, for example. Chances are you can find several community banks to shop in your town.
In fact, an FDIC study confirmed the strong presence of community banks across the country. Among the more than 3,000 counties in the U.S., roughly 1 in 5 are represented by community banks alone.
4. Local Banks Provide Faster Service
Community banks are locally owned and operated, and many decisions are made at local branches. If you apply for an auto or mortgage loan, or if you have questions about interest rates, retirement planning or investment accounts, you’re more liable to receive faster service than if you worked with a national bank, said Freeman.
5. Local Banks Provide Better Customer Service
If you feel like nothing more than an account number at your national bank, it might be time for you to switch to a community bank. Freeman explained the major difference between national and local banks. With local banks, Freeman said there’s a greater emphasis on enhancing the customer experience:
“There’s more focus on customers, and less focus on income or profit sharing.”
Another pro of a community bank: less turnover. If you work with an advisor, “you’re more likely to have the same advisor, versus a larger bank which typically outsources investing, and are handled by multiple advisors due to turnovers or promotions,” she said.
5 Cons of a Community Bank
1. Local Banks Have Smaller Cash Reserves
A community bank might offer what you’re looking for, and it might be easier to get approved for personal and small business loans. But these banks are smaller than many national banks, so they often have smaller cash reserves, warned Freeman. This means that if you need a small business loan, your local community bank might be unable to accommodate your request depending on how much you need.
2. Local Banks Might Have Limited Technology
As far as banking technology goes, some community banks are just as up-to-date as big banks, offering their customers a variety of convenient online and mobile banking features, such as bill pay, mobile deposits and money transfers. But this isn’t always the case, and depending on the local bank, you might run into glitches or systems that aren’t as user friendly as big banks.
The American Banker reported that community banks have traditionally been slow to adopt new technologies, and some have limited mobile applications, if any. Less technology limits the types of transactions customers can conduct from their mobile devices. For some community banks, coming into the digital age is a costly investment that involves replacing large amounts of technology.
3. Local Banks Might Have Fewer Financial Products
Another con of community banks: fewer financial products. Whether it’s checking, mortgage, auto loan or retirement options, many national banks offer services and products for just about everyone. Unfortunately, you might discover that some smaller banks don’t offer what you need. A local bank might focus more on mortgages and small personal loans, limiting its selection of retirement accounts, said Freeman.
4. Limited Accessibility
Many community banks have more than one location. So while it’s possible to locate a branch or ATM in a neighboring city, finding both becomes harder the farther you’re away from home. Accessing your money might require using an out-of-network ATM and paying a fee. If you travel a lot, it might be easier to manage your money with a big bank since these institutions can be found nationwide.
5. Standard Banking Hours
Freeman also warned that community bank branches might have more limited lobby and teller hours when compared to national banks. Bigger banks can sometimes be more accommodating, with drive-thru tellers available on the weekends, for example.
Should You Switch to a Community Bank?
Ultimately, you have to decide whether a local or big bank makes sense for your finances. If you’re looking for better interest rates, lower fees and flexible lending, a community bank might be your best bet. But if the latest banking technologies are important to you, or if you travel often and need a bank with locations outside your community, you might have a better banking experience with a national bank.