When you choose a bank, it’s critical to find the products, services, and rates that meet your needs. As you evaluate large national banks vs. local banks and credit unions, you may wonder if the size of an institution matters. To some degree, it does, but big banks and small banks can offer essential services like checking and savings accounts.
Here’s what to consider as you compare banks:
Choose a bank that’s easy to work with on your terms. If you prefer to bank in person, some institutions might have a better presence than others in your area.
Fees are often lower at small institutions, but that’s not always the case. For example, overdraft and non-sufficient funds fees were 13% to 19% lower at small banks and credit unions than at large banks, according to research by the Consumer Financial Protection Bureau released in December 2021. Identify your banking needs and compare fees for the services you need.
Small institutions can have a surprisingly large offering of products and services. But sometimes you need the horsepower of a megabank.
Banking with a local institution helps to support your local economy, and it may make your banking experience easier. But there are always pros and cons.
Let’s explore the differences between big banks and local banks in more detail.
Megabanks Have a National Reach
Large national banks with household names dominate large cities, and they even reach into smaller markets. If you value in person banking, a bank with branches nearby might be a decent option. They can offer one-stop shopping, allowing you to get multiple services from the same institution. For example, you might be able to use one login for your checking and savings accounts, credit cards, and loans.
Large banks that have a national reach include Bank of America, Capital One, Chase Bank, Wells Fargo, and many other large institutions.
Big banks often have rigid systems and processes, which makes dealing with them difficult. If you need help from customer service, you may be forced to call a national toll-free number, even though you know and trust the local bankers. You may have to speak with relatively new hires or answer multiple fraud department questions just to open an account. Contrast that experience with a local bank, where the same person can handle everything for you in one sitting.
Free checking is increasingly hard to find at megabanks. You can typically qualify for fee waivers by keeping sufficient cash in your account or setting up direct deposit, but genuinely free accounts are rare. You can occasionally find fee-free business checking at national banks, while local banks charge modest fees.
Local Banks Engage in the Community
Community banks and local credit unions are an excellent option for most banking needs. Just because they’re small doesn’t mean they can’t meet your needs. Some institutions limit their offerings, others outsource services, and some provide everything you need in-house.
Competitive Fees and Rates
Local banks are often a good bet for free checking accounts—the account you probably need most. Some offer standard free checking to everybody, while others waive fees if you just agree to receive electronic statements. They also compete with attractive rates on savings accounts and loans. Savings rates might still be higher at online banks, but there’s nothing to prevent you from having multiple accounts (online and local).
Because they’re engaged in local matters, local banks may make transactions easier. That’s particularly true if you need to borrow money. For example, megabanks might be unwilling to fund your local business, investment property, or agriculture loan, but local banks are accustomed to evaluating loans in your area.
For better or worse, local banks typically provide more personal service than big banks. It’s not uncommon to work with the same person over time. Bank staff can even learn about your needs and suggest bank products that may be helpful. You develop relationships and know what to expect and who to talk to when you have questions. At the same time, you lose the anonymity that comes with being a big bank customer. If you live in a particularly small town, you may prefer to keep a low profile.
While local banks and credit unions can offer everything from checking accounts to merchant accounts to wealth management, some institutions focus on basic consumer needs. If your favorite local bank doesn’t handle business accounts and you start freelancing, you’ll need to look elsewhere.
Your banking needs to drive your choice of banks, but you may feel a sense of satisfaction when working with a local institution. Local banks and credit unions are part of the local economy, and they often give back. You’re likely to see a local institution’s logo at charity races and other events, signaling that they contributed money or other resources to help make the event a reality.
Don’t Ignore Credit Unions
As you explore banks, check for local credit unions, which are not-for-profit customer-owned financial institutions. Credit unions can often offer the same products and services as local banks and big banks, and they (ideally) exist to serve their members. Even if you choose a small credit union, you may have access to thousands of other credit union branches and ATMs nationwide through a shared branching network.
Frequently Asked Questions (FAQs)
How do you find local banks?
One way to find local banks is to keep an eye out in your neighborhood. Even if you don't spot a bank branch, local banks often sponsor local events and place ads throughout the community, so you may stumble upon the bank you're looking for just by living in your area. There are also websites (like this one managed by the Independent Community Bankers of America) that help you search for community banking services.
What's the difference between a bank and a credit union?
The essential difference between banks and credit unions is that a credit union is a nonprofit organization owned by member customers. A bank seeks to profit from its business, and it's owned by investors and shareholders just like any other business. All other differences, such as relatively lower interest rates on bank account deposits, stem from that difference.