What Is a Community Bank?

An American flag in front of a bank that is housed in a bricked building.

Are you in the market for a different kind of bank? You have options beyond the big four—JPMorgan Chase, Bank of America, Wells Fargo and Citibank. What if you could bank with a smaller, friendlier bank? If that idea sounds appealing, a community bank might be for you.

Community banks offer the same basic services big banks do, but with a few key differences. They don't operate nationwide branch networks. They focus on lending to and serving their communities. Most are not publicly traded, and therefore don't have to answer to shareholders. And most pride themselves on "relationship banking," which can be especially helpful to small business owners and up-and-comers hoping to break into homeownership. Ready to learn more?

What Makes Community Banks Different?

At the end of 2019, the Federal Deposit Insurance Corporation (FDIC) counted 4,750 community banks in the U.S. Within those ranks, there's plenty of variation. Some community banks are small and genuinely quaint; others are sophisticated operations with award-winning technology. Umpqua Bank, based in Oregon, won a 2020 customer experience innovation award for its human digital banking strategy. But it's also a local favorite for its community partnership, which includes volunteerism, community grants, sharing expertise with local businesses and providing space for community events like "stitch and bitch" knitting circles.

Though there's no universal definition of what qualifies a financial institution as a community bank, here's a quick comparison. Each of the four largest U.S. banks has trillions of dollars in assets, while one common guideline defines community banks as having no more than $10 billion in assets. In its 2020 study on community banking, the FDIC describes community banks as having these characteristics:

  • Lending and deposit gathering within a limited market area
  • Relationship lending, which relies on specialized knowledge gained through long-term business relationships
  • Private ownership, prioritizing the long-term interest of local communities over the demands of capital markets.

Comparing Community Banks and Big Banks

How do you decide which is a better fit for you and your priorities? Here are a few ways of thinking about the differences between community banks and their more traditional counterparts.

Community Banks vs. Big Banks
Community Banks vs. Big BanksBig Banks
Locally owned and operatedPublicly traded
Small or regionalNational
Many are active small business lenders.Corporate lending is often geared toward large enterprises.
Loans and banking products for everyday people in the community, including home loans for low- or moderate-income borrowers.Banking on a national scale, with a wide array of products and services that may be more "one size fits all."
Strong interest in serving local communities.Caters to a broad constituency that includes big corporations and a mass market. Also accountable to shareholders and their interest in profitability.

You might prefer a big bank if these factors are important to you:

  • Nationwide network: Branches and ATMs around the country.
  • Mobile and online experience: Including things like digital financial assistants or automated loan applications.
  • Broad range of financial products: Different credit card programs, elite investment services or international money exchange, for example.
  • Efficiency vs. personality: You're comfortable being anonymous.
  • Ubiquity: Travel or frequent moves make it important for you to bank at a financial institution where your location won't be a factor.
  • Size: If you like a bank that's "too big to fail," these are your banks.

You might prefer a community bank if you value:

  • More personalized service: You actually visit the branch and prefer to know your bankers.
  • Community focus: A bank that is based in and invests in your community.
  • Relationship banking: While this is a marketing term used throughout the industry, at a community bank a strong relationship could help you secure a loan for your home or small business.
  • Less emphasis on technology: Some community banks may lag a bit here, but many others are ahead of the game. Be prepared to shop for the technology you want.
  • Basic needs: Checking, savings, loans and credit cards at favorable rates are all you really need.
  • A good fit: At its best, community banking can provide all the services you need plus bankers who actually care about promoting your financial well-being or helping you grow a business.

Community banks aren't the only alternatives if you're looking for a smaller-bank experience. Like community banks, not-for-profit credit unions often have favorable rates on savings, loans and credit cards. Many also participate in a national shared branch network and the CO-OP ATM Network with 30,000 surcharge-free ATMs nationwide.

Digital banks are also on the rise. What online-only banks like Chime and Axos lack in human interaction they can make up for in digital tools and features like faster deposits as well as potentially higher interest rates on savings accounts.

As you shop for a bank, also think about the "banking" you do outside your bank. You may use outside lenders or credit cards. You may pay friends with Venmo, invest using Robinhood and maintain a 401(k) through your work. If so, which services do you really need from a bank? Your list may be short.

Where to Find a Community Bank

Finding the right community bank can take some legwork because every community bank won't be the right fit for you. If you're looking for candidates, here are three starting points:

  • Check your neighborhood. The place to find a community bank is—no surprise—in your community. Friendly local branches in your neighborhood or local shopping district are a good place to start.
  • Use a locator. The Independent Community Bankers of America has a community bank locator that will find community banks in your area.
  • Ask a friend. Relationship-focused community banks tend to have enthusiastic customers.
  • Read the news. A community bank that sponsors charity events, volunteers to help the community or offers financial literacy workshops might be the kind of bank you're looking for.

Before you open an account, visit the bank's website to make sure they're FDIC insured and that they offer the products you need: free or low-cost checking, high-yield savings, home or small-business loans and solid mobile-banking tools, for example. Check out their blog or social media as well: You'll get a sense of their personality and how they relate to their customers. You may find a community you'd like to join—and get a bank in the process.

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