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What Is a Community Bank?

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Dana George
Author: Dana George
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Dana George has a BA in Management and Organization Development from Spring Arbor University. For more than 25 years, she has written and reported on business and finance, and she's still passionate about her work. Dana and her husband recently moved to Champaign, Illinois, home of the Fighting Illini. And though she finds the color orange unflattering on most people, she thinks they'll enjoy Champaign tremendously.

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Ashley Maready
Fact Checked: Ashley Maready
Ashley Maready
Ashley Maready
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Ashley Maready is a former history museum professional who made the leap to digital content writing and editing in 2021. She has a BA in History and Philosophy from Hood College and an MA in Applied History from Shippensburg University. Ashley loves creating content for the public and learning new things so she can teach others, whether it's information about salt mining, canal mules, or personal finance.

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Banking is so much more than choosing a savings account or checking account. Here, we break down the differences between a large bank and a smaller, community bank.

We'll highlight the pros and cons of each and help you select which type of banking service best meets your needs.

What is a community bank?

Unlike a credit union or savings and loan, there is no single way to define a community bank. The closest we can get is the Federal Deposit Insurance Corporation (FDIC) definition. According to the FDIC, a community bank is a financial institution with less than $10 billion in assets.

To put that into perspective, JPMorgan Chase has more than $2.8 trillion in total assets, and Bank of America is sitting pretty with more than $2.1 trillion. In fact, 31 financial institutions control more than 60% of the total money in U.S. banks, according to USA Facts.

That makes community banks something special. Community banks are designed to do one thing well: Serve their communities. Community bank customers tend to be from the area, meaning each loan has the potential to strengthen the community as a whole.

What's the difference between a community bank and a large bank?

The major difference between a community bank and a large bank is the mission. Community banks are all about shoring up the communities they serve.

That means taking in local deposits, making loans to area residents, and doing what it can to help area businesses prosper. While many large banks are owned by stockholders, a community bank is more likely to be privately owned.

Community banks also tend to be controlled locally by people who understand the area and are invested (financially and emotionally) in its growth.

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Are community banks FDIC-insured?

Just like big banks, community banks are typically FDIC insured. That means FDIC insurance covers your account, dollar for dollar, including any interest accrued. The FDIC insures accounts up to $250,000 per depositor, per ownership category.

Benefits of a community bank

It makes sense to compare the benefits of a community bank to those of a large bank before deciding where your money should go. Here's some of what community banks have to offer:

Personal attention

You're more likely to be recognized when you walk into a community bank. After all, the people who work there also live nearby. And because there's not as much foot traffic through a community bank, everyone -- from loan officers to tellers -- are more likely to remember you.

If you're looking for a bank that offers personalized service and can help you choose the right account, a community bank is tough to beat.

Better rates of return

Some of the best rates on MMAs, certificates of deposit (CDs), and high-yield savings accounts are available through community banks.

It may be less structured

Let's say you had a bad banking experience in college or ran into financial trouble during the pandemic. You need a loan but can't qualify through a large bank, or if you do qualify, the APY on the loan will be too high.

Since they tend to be locally run, community banks are often less strict about lending practices. That's not to say they'll give you whatever you want or that your credit score does not matter. Like every other bank, community banks must protect the bottom line (and other customers).

However, because you have a working relationship with a community bank and the people who work there, they are more likely to work with you to find a creative way to finance a loan.

Giving back

You know that every dollar you deposit represents more money the bank can invest in your community. You play a role in helping your community grow and prosper.

Benefits of a big bank

There are some services a larger bank can offer that are less likely to be provided by a local community bank. For example:

Online and mobile technology

While some community banks offer a strong digital presence, large banks have more money to pay for the latest, greatest, groundbreaking technology If that's important to you, it's worth checking out the digital technology available through both large banks and local community banks.

A more comprehensive range of products

Offerings vary by community banks, but most large banks provide services like foreign currency exchange, a wide array of investment accounts, and financial advisors.

Greater access

If you travel away from home, it's easier to find an ATM associated with a large bank. Finding a branch will also be easier if you need to stop in for a wire transfer or money order.

Bottom line

The great thing about humans is how different we are. What's suitable for one may not be right for another. The best bank for you may not be the best bank for another person.

As with any financial decision, take time to figure out what you're looking for. If it's personalized customer service, a higher rate of return on investments, and the ability to help your community grow, a community bank is certainly worth a closer look.

If you're ready to start looking for a bank, check out our list of the top checking accounts.

FAQs

  • As the name suggests, a community bank is tied to a particular community. The bank takes in deposits from people living and working in the area. In return, a community bank reinvests in local communities by making loans that help businesses grow. A regular bank typically has more than $10 billion in assets and may be able to offer more in the way of financial products and services. A large bank may also prove to be more convenient, particularly if you travel often.

  • An excellent example of a community bank is Carver Federal Savings Bank. With a minimum deposit amount of $50, it's not difficult to open an account with this Black-owned bank. Carver Federal Savings Bank offers the perks you'd hope to see in a community bank, like free checking and waiving the first five out-of-network ATM fees incurred each month. And for every dollar deposited, Carver reinvests $0.80 back into the community, far above the industry average.

  • The pros of a community bank include:

    • More personalized service
    • Better rate of return on some investments
    • More flexible lending
    • Opportunity to reinvest in your community

    The cons of a community bank include:

    • Less access to bank branches and ATMs
    • Could offer fewer financial products
    • May have less robust digital technology