Is It Dangerous to Keep My Money at a Community Bank?

If you're looking to find a home for your savings, you have choices. You could go with a major bank, or you could stick with a smaller, community bank instead.

The Federal Reserve defines community banks as those with less than $10 billion in assets. Now that may seem like a lot of money, but for context, Wells Fargo has approximately $1.9 trillion in assets. So in the world of banking, $10 billion is actually a pretty small amount, even though that's sort of hard to believe.

You may be worried that if you opt for a community bank, your money will be at risk, since these banks don't have the same vast financial resources as larger banks. But actually, keeping your money at a community bank is generally a perfectly safe option. And doing so could really work to your benefit.

It's all about FDIC insurance

As of 2019, there were 4,750 community banks across the U.S. with more than 29,000 branches. So chances are, this type of bank exists in your very own neighborhood.

Community banks tend to invest their assets more conservatively than larger banks, so they may be less likely to fail in the first place. But even so, as long as you opt for a community bank that's FDIC-insured, you won't have to worry about losing the money you've no doubt worked hard to save.

With an FDIC-insured bank, your deposits of up to $250,000 are protected. And if you open a joint account at an FDIC-insured bank, you get a total of $500,000 in protection.

Now, perhaps you have a lot of money you want to sock away. So if you're looking to save more than $250,000 individually, then it's a good idea to spread your cash across a few banks. But in that case, choosing several community banks is a perfectly safe option as long as each one holds FDIC insurance, which, rest assured, is a common feature of community banks. You can look up a bank you're considering using the FDIC's BankFind Suite tool, to see if it's insured.

The upside of choosing a community bank

Community banks, as the name suggests, generally aim to support communities and local businesses. Establishing a relationship with a community bank could be beneficial to you in the event that you wind up needing to apply for a loan or line of credit, whether individually or as a small business owner. A community bank could also be a good resource should you decide you're ready to start a business for the first time and need funding to get it off the ground.

Plus, community banks often pride themselves on offering outstanding customer service. Granted, that's something you should really expect from any bank. But a community bank might go the extra mile.

All told, choosing a community bank could work to your advantage. And if you pick one that's FDIC-insured, you won't have to lose sleep over the idea of losing your hard-earned savings in the event of a bank failure.