When you become an adult, one of the first things on your plate will be opening a bank account. At a young age, managing finances can seem tiresome, making it tempting to open a bank account as soon as possible. However, many people fail to realize that not every bank is the same; some may be better suited to your requirements.
Generally, people tend to choose the bank their family uses or a popular national bank with many locations across the city. But it’s worth noting that banks do much more than just hold money; choosing the right banker can help you make sound financial decisions. In fact, when you stop to think about it, it’s rather ironic how little time we spend considering who we are giving our valuable money to.
This is where the community bank comes into the picture. While less well-known than the national banks most people are used to seeing, community banks still play a vital role in the communities they serve.
What Is Community Bank?
Also known as regional or local banks, community banks are smaller institutions that serve a specific geographic area or community. They have been a cornerstone of American finance since the 19th century, emerging to serve local farmers, small businesses, and families underserved by larger city banks.
The FDIC defines these banking organizations as those with $10 billion or less in assets. Importantly, deposits at community banks are insured by the FDIC up to the legal limit, ensuring the safety of your money. However, it’s not only the asset size that comes into play; rather, purpose sets it apart. Most community banks focus on building personal relationships with their customers and generally employ members of the communities they serve, fostering more personal banking relationships.
These strong relationships can be a financial bonus, too; a customer’s personal situation or relationship with the bank can prove stronger than their credit score, making it a key factor in loan approval.
Local small businesses that may not qualify for loans from national banks can rely on community banks to consider factors beyond credit history, such as the business’s standing and community reputation.
Differences Between Community Banks And Larger Banks
- Larger banks are generally global or national operations that cater to a large customer base. Community banks, on the other hand, are much smaller and serve only towns or regions. As a result, they may not offer the same extensive range of standardized services and products found at larger banks.
- Since large corporate banks cater to thousands—if not millions—of customers, they centralize most decisions. Community banks are operated by professionals who focus on local needs and make decisions that are more closely tied to their communities. This also makes their decision-making process more community-centric.
- Customer service is always a key focus for large banks serving local and international clients. But community banks take a different approach to service, valuing personalized, relationship-based financial services. It’s quite common for bankers to know customers’ names, occupations, and families before they even walk into the branch.
How Community Banks Are Unique
The local focus is what really sets community banks apart from megabanks. Unlike larger banks, which operate without a real connection to where they make loans or gather deposits, community banks reinvest in the neighborhoods where depositors live and work, helping foster growth in the local community and strengthening local businesses.
Applying for loans at megabanks is not always easy, especially if you have an unfavorable credit score. Community banks don’t depend only on impersonal metrics when making loan decisions. Rather, the decisions are made with the customer’s personal circumstances in mind, making them more flexible. It’s the same principle that applies to decision-making, too. While megabanks convene loan-approval committees far from customers, community banks have a more timely decision-making process for business loans because decisions are made locally.
People who opt for community banks often do so for the community engagement and accessibility they offer. Since these banks are strongly involved in their local communities (unlike megabanks, which are almost like detached entities), they serve as a means for customers and communities to flourish.
Community banks frequently sponsor local sports teams, host financial literacy workshops, and donate to local charities and events, making a visible impact beyond traditional banking services.
Downsides Of Community Banking
Community banks serve a specific location, so they have limited branch networks. Their online banking services may be available, but they may still be smaller than those of megabanks.
They offer fewer products and services than larger banks, so customers may not always find everything they need for investing, banking, lending, or financial planning in one place. Community banks often provide more competitive fees and interest rates, but this can vary.
Digital banking is expanding every day, but the best mobile apps and online platforms are often found at bigger banks. Of course, it varies by bank, but community banks may offer a less seamless digital banking experience. However, many community banks are investing in improving their digital offerings to better serve customers.
Final Thoughts: Are Community Banks a Good Option for You?
A community bank will be a good option if you want a high-touch, more personal banking experience. If you are community-centric, this option may appeal to you because it lets you support your local community, business owners, and neighbors. Likewise, if you live in a rural area and need to travel a long distance to a convenient national bank branch, this may be your best in-person banking experience.
That said, a community bank would not be the ideal option if you want to meet all your financial products and services under one roof. Likewise, if you move or travel often, particularly across state borders, it is best to choose a national bank that can serve you from any location, as they are not geographically limited. In this case, you would also want the most seamless digital experience, regardless of location, so a national bank would be your best option.
Since community banks are a key part of Main Street and reinvest local dollars back into the community, they help create more local jobs, too. Their banking philosophy is strongly ingrained in their operations: one loan and one customer at a time, which creates a personalized banking experience. Since it is also more favorable for people with unique financing requirements, it helps create more meaningful and long-lasting customer relationships while also championing local community empowerment.
