It wasn't that long ago that most people took care of nearly everything that affected their personal finances by working with local businesses or professionals. Even the smallest country towns had a general store where you could buy groceries, hardware, first aid supplies, and other common necessities. Every few weeks, you might drive an hour or so to the nearest big town, where you would visit specialized merchants and stock up on things you couldn't get in your hometown. And perhaps once or twice a year, you might plan a trip to the big city and experience shopping like you'd never see anywhere near your home.
Now the global economy has invaded rural and urban America alike. With a click of the mouse, you can buy things from around the world. The success of delivery companies like FedEx (NYSE:FDX) and United Parcel Service (NYSE:UPS) has made it easy for vendors to send goods quickly to almost anywhere you want them to go. Online retailers like Amazon (NASDAQ:AMZN) and auction services providers like eBay (NASDAQ:EBAY) provide one-stop shopping for a huge variety of products, and specialized merchants can now offer their services to customers both near and far.
Of course, you're always going to want to do some things locally. When your toilet is backed up, outsourcing the plumbing work to India isn't going to be a very satisfying option. High gas prices also make it impractical to drive long distances for minor purchases of everyday needs like fresh food, so there will always be a place for your local grocery store. Yet the impact of the changing economy on locally based small businesses is undeniable.
Bricks and mortar versus the Internet
One example of the tension between local and national businesses can be seen in the financial services industry. Many towns have a mix of small local banks with a handful of branches and large national banks with a small branch or ATM. Similarly, nearly everywhere you go, you can find a local financial advisor or stockbroker to help you with your financial planning needs; sometimes this professional is an independent advisor, but in other cases, the advisor is affiliated with a national financial services company like Edward Jones or Wachovia.
Local banks and financial professionals tend to stress the value and importance of personal service. They take pride in the fact that whenever you walk in the door, the employees know you and can greet you by name. If you ever have a problem, they will be there in person to help you; you will never have to wait for minute after minute on hold for a toll-free operator to forward your call to an authorized customer service phone representative. Smaller banks also tend to have more flexibility in their operational procedures, and so customers can sometimes get things done that larger national bank branches with limited discretion to deviate from standard procedures won't be able to do.
Unfortunately, personalized service often comes at a price. For instance, the rates that local bank branches offer are often lower than the rates you can find at banks with a national customer base, especially online banks. While many traditional banks still pay less than 1% on their standard interest-bearing checking accounts, online banks like EverBank and Imperial Capital Bank currently offer rates of 3% or more. Similarly, while standard savings accounts at traditional banks often bear little interest, online banks like Banco Popular's E-Loan and Emigrant Direct offer rates in excess of 5%.
Similarly, although online deep discount brokerages like TD Ameritrade (NASDAQ:AMTD) and E*Trade (NYSE:ET) won't give you someone in your hometown to talk to face-to-face, their low commissions can save you a bundle even if you don't tend to buy and sell stocks very often. Full-service brokers with companies like Merrill Lynch (NYSE:MER) may give you a great deal of personal attention, but you'll often find that high commissions, fees, and other charges come with it.
What do you need?
Choosing whether or not to stay local with your personal finances isn't merely a question of dollars and cents. To decide your best course of action, you have to understand your own particular needs and preferences. For many people, the intangible value of having a personal relationship with someone in their community is priceless, while the potential hassle of having to resolve problems by phone or email outweighs the potential savings. For others who are comfortable handling their financial affairs largely without assistance, transacting business electronically may be preferable to having to work with another person.
One possible compromise is to take advantage of the better rates offered by banks outside your community for simple accounts like checking and savings accounts and certificates of deposit. These types of accounts are usually straightforward and don't involve the need for much personal service. For more complicated transactions with which you are less familiar and comfortable, such as obtaining a home mortgage or business loan, you may want to spend a bit more to have a local professional available in person to calm your fears and answer questions that will help you do what you need to do to complete the transaction.
Having multiple options for doing things is a two-edged sword. It's nice to have choices, but getting the information you need to make an informed choice can be difficult. By being aware of the financial services options available to you, you can use your own preferences and self-knowledge to make the choice that's right for you.
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FedEx, eBay, and Amazon.com are all Stock Advisor selections. Banco Popular and UPS are Income Investor picks.
Fool contributor Dan Caplinger goes wherever he has to for the best rates. He doesn't own shares of any companies mentioned in this article. The Fool's disclosure policy always gives you good returns.
