Deposits at Small Banks Are Down $2.6B. But Here's Why You Shouldn't Count Them Out

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield. APYs are subject to change at any time without notice.

KEY POINTS

  • Small bank deposits were down $2.6 billion in May, but that was only a decline of 0.05%.
  • Many small banks are FDIC-insured, making them just as secure as big banks.
  • Small banks also tend to have fewer fees and higher interest rates.

After Silicon Valley Bank collapsed, deposits at small banks plummeted. The biggest drop was for the week ending March 15, when small bank deposits were down by a record $119 billion. Even more recently, they've still been declining.

In May, CNBC reported that small bank deposits were down $2.6 billion. On the bright side, that was only a decline of 0.05%, indicating that deposits at small banks could be stabilizing.

Although some people worry about the safety of their money due to recent banking failures, small banks can be just as safe as big banks. They also often have some key advantages over the banking giants. If you're learning about banking and looking for the right place for your money, here's why you shouldn't count out small banks.

Many small banks have FDIC insurance

It's a common misconception that big banks are safer than small banks. Most U.S. banks, big and small, have FDIC insurance. This insurance covers up to $250,000 ($500,000 for joint accounts) per eligible account in the event of a bank failure. If the bank fails, the FDIC (Federal Deposit Insurance Corporation) will reimburse you.

Our Picks for the Best High-Yield Savings Accounts of 2024

APY
4.25%
Rate info Circle with letter I in it. 4.25% annual percentage yield as of July 25, 2024
Min. to earn
$1
APY
5.31%
Rate info Circle with letter I in it. 5.31% annual percentage yield (APY) is accurate as of 7/11/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.
Min. to earn
$500 to open, $0.01 for max APY
APY
5.25%
Rate info Circle with letter I in it. To ensure you keep getting the highest rate at UFB, you'll need to keep an eye on their rates. Occasionally, the bank launches new accounts with higher rates. Existing accounts need to contact the bank to request being moved to one of these new accounts.
Min. to earn
$0

You can check if a bank is FDIC-insured on its website or by calling customer service. Another option is to call the FDIC and ask.

Just so you know, credit unions are insured through the NCUA (National Credit Union Administration). It's the same type of insurance and coverage limit, covering up to $250,000 if your credit union fails. So, if you're wondering whether your money is safe with a credit union, the answer is yes. Check that it has NCUA insurance to be sure.

Small banks usually have fewer fees

One of the drawbacks of the big banks is their fees. Many of them charge a variety of fees, such as account maintenance fees, out-of-network ATM fees, and overdraft fees.

To be fair, there are ways to avoid these. Banks with account maintenance fees will typically waive them if you meet certain requirements, such as maintaining a minimum balance or receiving direct deposits. Out-of-network ATM fees and overdraft fees are also avoidable.

But you don't need to worry about fees at all if you use a bank that doesn't have them. Small banks usually don't charge nearly as many fees as big banks. There are plenty of smaller online banks with no maintenance fees and that reimburse you for out-of-network ATM fees, up to a monthly limit.

Small banks often have higher interest rates

Annual percentage yields (APY) vary quite a bit from bank to bank. While you might think that big banks pay more, they actually tend to have the lowest interest rates.

The average savings account APY nationwide is 0.40%. Many big banks offer far less, with some having savings accounts with rates as low as 0.01%. On the other hand, many of the high-yield savings accounts available with smaller online banks are offering 4% or more.

To put that into perspective, let's say you have $10,000 in savings. If you keep it with one of those big banks offering 0.01%, you'll earn $1 in interest in a year. If you keep it with a high-yield account offering 4%, you'll earn $400 in interest. Considering high-yield accounts are every bit as safe, there's really no good reason to give up so much interest.

Small banks aren't riskier or worse than their larger counterparts. They may not have the massive client bases and branch networks, and some don't have any branches at all. But they're a secure place for your money, and because they have fewer fees and higher interest rates, they're often the better choice.

These savings accounts are FDIC insured and could earn you 14x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 14x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

Two of our top online savings account picks:

Rates as of Jul 25, 2024 Ratings Methodology
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American Express® High Yield Savings Western Alliance Bank High-Yield Savings Premier
Member FDIC. Member FDIC.
Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Rating image, 4.50 out of 5 stars.
4.50/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor

APY: 4.25%

Rate info Circle with letter I in it. 4.25% annual percentage yield as of July 25, 2024

APY: 5.31%

Rate info Circle with letter I in it. 5.31% annual percentage yield (APY) is accurate as of 7/11/2024 and subject to change at the Bank’s discretion. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.

Min. to earn APY: $1

Min. to earn APY: $500 to open, $0.01 for max APY

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