The benefits of local banks: Why choosing a community bank can be a smart move

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Are you tired of being just another account number at your big bank? It might be time to consider moving your money to a smaller community bank.

If you’re looking for a more personal touch, you may want to consider a local bank. Large, national banks may offer a wider range of services and more innovative technology. But local banks provide unique benefits that often make them a better choice for many consumers.

What are local banks?

Local banks, or community banks, are smaller financial institutions that serve a specific geographic area. 
These banks are often independently operated and operated. They have a strong emphasis on relationship-building and supporting the local economy.

Some key characteristics of local banks include:

• Locally owned and managed
• Focused on serving a specific community or region
• Emphasis on personalized customer service
• Involvement in local charitable and community events
• Support by those who understand the local economy and market

Here are the four key advantages of banking with a local bank and why it might be the smart financial move for you.

1. Personalized customer service 

One of the best reasons to switch to a small bank is the promise of a more personalized customer experience. While big banks may boast 24/7 support, that often means talking to a faceless representative at a distant call center. 

With a small bank, you're more likely to speak with someone who knows your name and your unique financial situation. 

"It's our way of making our clients feel comfortable sharing information with us, honestly and transparently, about their financial needs, aspirations, goals, and dreams," says Rick Smith, president of California-based Tri Counties Bank, of his institution's "casually professional" approach.

This commitment to genuine connection is common among community banks nationwide.

"Community bank employees are typically deeply rooted in the local community, fostering trust and engagement through active involvement in community events and initiatives," says Rob Birgfeld, executive vice president of Independent Community Bankers of America. “This local connection translates into a more responsive and attentive customer service experience where customers feel valued and supported throughout their banking interactions.”

This personalized touch can be especially valuable for small business owners. According to the Federal Reserve’s Small Business Credit Survey, community banks have a 74% net satisfaction score among these customers. That's significantly higher than the 56% for large banks and 40% for online lenders.

2. Competitive rates and fees 

Local banks often offer competitive rates and fees compared to their larger, national counterparts. This is often because they have lower overhead costs and are more focused on building long-term relationships with their customers. Community banks may provide:

• Higher interest rates on savings accounts and CDs
• Lower fees for checking accounts and other services
• More affordable loan rates for mortgages, car loans, and personal loans

It's always a good idea to shop around and compare rates and fees from multiple banks, but don't discount local institutions — you may be surprised at how competitive they can be.

Take Republic Bank of Chicago, which currently offers a 2% APY (up balances up to $15,000) on its Choice Checking Account – a rate that puts most big banks to shame. Or First Savings Bank, a local bank in Indiana, whose 6-month CD special of 5.35% APY rivals many of the best short-term rates available online.

The financial benefits of small banks extend beyond savings rates. A recent study from the Consumer Financial Protection Bureau found that local institutions charge lower interest rates on credit cards compared to big banks. That difference can add up to $400-500 in yearly savings for cardholders.

3. Community involvement and investment 

Many local banks are deeply invested in the communities they serve. They often support local charities, community events, and initiatives that promote economic growth.
When you deposit your money with a small bank, you're not just securing a safe place to save. You're investing in your local economy. 
Think of it as buying groceries from the neighborhood farmers market instead of a big-box chain. By supporting local businesses, you help create a cycle of economic growth that can benefit everyone in the community.

4. Faster loan approvals and more flexibility 

When securing a loan, working with a local bank can often be advantageous. Community banks often have faster lending decisions and less red tape than big banks.  That's because decision-makers are usually located within the bank and have a deep understanding of the local market.

Smith points to Tri Counties Bank's expertise in helping California homebuyers navigate the complex landscape of grants and assistance programs.

"Our team is entrenched in our communities and has a deep understanding of the various programs," he says. It’s a level of insight that can be hard to find at a big bank with a more generic, one-size-fits-all approach.

Local banks may also be more willing to consider factors beyond your credit score and income when reviewing a loan application. They may look at your relationship with the bank or other unique aspects of your finances. 
This flexibility can be particularly beneficial for small business owners, who may struggle to secure financing from larger banks that rely on more rigid approval criteria.
 

How do I know a local bank is right for me?

It's important to carefully weigh the potential drawbacks before moving your money. Some key questions to ask:

• Does the bank offer the digital tools and features you need? Smaller banks may not have the resources to invest in robust mobile apps and online banking platforms. A big or online-only bank may be a better fit if you rely heavily on these digital tools.
• How important is nationwide ATM access? If you prefer the convenience of fee-free cash withdrawals, you'll want to review a small bank's ATM network before switching. While some community banks participate in large networks like Allpoint and MoneyPass, others may have more limited options.
• Are you getting the absolute best rates possible? While many small banks offer competitive rates, they do still often have higher overhead costs than online banks. If maximizing your savings is your top priority, it's worth comparing rates at local banks, big banks, and digital banks to ensure you're getting the best possible return.

How to switch to a smaller bank 

If you've decided that a small bank is right for you, the next step is finding the right institution and making the move. Here's a step-by-step guide to ensure an easy transition:

• Research and compare local banks: There are around 4,750 community banks, according to the FDIC. You can look online at websites like BankLocally.org to find banks in your area. Then, dive into the details of their product offerings, rates, and requirements. Don't hesitate to visit branches in person or call customer service to get the most up-to-date information.
• Open your new account: Once you've chosen a bank, it's time to set up your new bank accounts. Be sure to ask about any new customer bonuses or promotions that could sweeten the deal. Keep your old accounts open and funded at this stage to avoid any disruption in your finances.
• Redirect your direct deposits: Contact your employer and any other sources of direct deposit payments to update them with your new account information. Depending on their processing schedules, it may take a few weeks for these changes to take effect.
  Update your bill payment information: If you have any recurring bills linked to your old account, be sure to provide them with your new account details to avoid any missed or late payments.
• Close your old accounts (carefully): Once you've confirmed that your direct deposits and bill payments are flowing smoothly through your new accounts, it's time to say goodbye to your old bank. Request a formal letter confirming the closure of your old account. Be sure to shred any leftover checks, debit cards, or other banking forms to protect your privacy.

Bottom line

A small bank can make a big difference in your life. By moving your money to a local institution, you can enjoy a more tailored banking experience while supporting the economic health of your hometown.

No financial decision is one-size-fits-all. Think about the products and services you need right now and your long-term financial goals to find a bank that works for you and your money. 

Editorial disclosure: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.