Having a bank (or two) is one of those dull, boring, and usually necessary adult things we all just kind of do. At some point in your life you got your first paycheck and you needed someplace to put it, so you opened a bank account. When we think about banking we usually focus on getting the best interest rates and the lowest fees we can find, which usually leads us to a big, national bank.
Big banks offer a lot of convenience—you can usually contact them at any time, they offer a broad range of services, and you can manage most of your financial life on your phone. That’s great, but smaller, local banks (defined by the Federal Deposit Insurance Corporation [FDIC] as a bank with less than $1 billion in assets) aren’t just smaller—they also offer a lot of benefits that larger, national or online banks can’t.
It can be expensive just to have a bank account. Between ATM fees and overdraft fees, it can feel like you’re paying rent to park your money someplace.
Local banks usually offer much lower fees, and fewer of them, than national banks. The Consumer Financial Protection Bureau found that overdraft fees at smaller banks are as much as 19% lower than at large banks. And this is true for the other side of that coin—interest rates. If you need a credit card, you’re probably better off working with a local bank, where interest rates are typically 8-10 points lower than at larger banks. And local banks charge annual fees a lot less often as well. That can translate to a lot of saved money over the course of a year.
Your big bank doesn’t really care about you—or even know who you are. That’s why banks sometimes close your account without explanation and force you to navigate confusing phone menus when you call their supposedly 24-hour customer service line. A local bank will offer you much more personalized service, including face-to-face customer service when you need it. That’s one big reason why local banks generally score a net 74% customer satisfaction rating, compared to just 56% for larger banks—and an abysmal 40% for online banks.
That more-personal service can impact more than just your satisfaction as a customer. When you need a loan, local banks often prioritize “relationship banking.” This means they take more than just your credit score and net worth into consideration when you need to borrow money—they’ll consider your relationship with the bank, your spending history, and the potential impact of the loan on the community itself. That can make it easier to borrow money—and you’ll probably get a lower rate as well.
Finally, local banks aren’t just banks—they are members of your local business community. As such, they have a vested interest in investing in that community. Larger banks are usually focused more on making profits from their investments—investments that typically have little to no impact on your community—but small, local banks are usually more focused on “productive investments.” Local banks make more than half the loans to small businesses, so your money is being used to directly benefit your local area. This also benefits you because a local bank will know the community intimately, which can be a compelling factor when you’re seeking a loan or investment for a business or service that will benefit the local area.
