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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.
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.
Here's something all community banks have in common: They serve their communities. That means bank customers tend to be from the area, and the bank reinvests in the community by making loans designed to help area businesses grow.
The major difference between a community bank and a large bank is the mission. Community bankers 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.
The last FDIC community banking report was published in 2020. At that time, community banks represented only 15% of the entire banking industry. Yet, community banks granted 70% of all agricultural loans and 36% of small business loans. Community banks may not be large but they do have a powerful impact on local businesses and farms.
Just like big banks, community banks are typically FDIC insured. That means FDIC insurance covers your account, dollar for dollar, including any interest accrued. In 2022, FDIC insures accounts up to $250,000 per depositor, per ownership category. Let's say you have a money market account (MMA) in your name only. It has a $250,000 balance. You also have a shared checking account with your spouse. That account has $400,000. If the bank failed, FDIC would insure the entire $650,000. That's because the MMA and checking account are in two separate ownership categories and because both you and your spouse are insured up to at least $250,000 for each account category.
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:
There are some services a larger bank can offer that are less likely to be provided by a local community bank. For example:
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.
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.
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 $0.73 back into the community, placing this community bank 92% above the industry average.
The pros of a community bank include:
The cons of a community bank include:
Our Banking Expert
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