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Are you in the market for a different kind of bank? Community banks offer the same basic services big banks do, but with a few key differences. They don't operate nationwide branch networks. Instead, they focus on lending to and serving their communities. Most are not publicly traded, and therefore don't have to answer to shareholders. And they 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?
How Does a Community Bank Work?
Though there's no universal definition of what qualifies a financial institution as a community bank, here's a quick comparison that might help. Each of the four largest U.S. banks—JPMorgan Chase, Bank of America, Wells Fargo and Citibank—has $1 trillion or more in assets, while one common guideline defines community banks as having no more than $10 billion in assets. The Federal Deposit Insurance Corp. (FDIC) describes community banks as having these characteristics:
- Lending and deposit gathering within a limited geographic 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.
| Community Banks vs. Big Banks | |
|---|---|
| Community Banks | Big Banks |
| Locally owned and operated | Publicly traded |
| Small or regional | National or international |
| 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" |
Pros and Cons of a Community Bank
Banking with a community bank has its own pros and cons. Here are a few considerations to keep in mind.
Pros of Banking With a Community Bank
- Relationship banking: You're more than just a customer at a community bank. Community banks may factor in your family history or their knowledge of your small business when considering a loan.
- Local investment: Community banks lend money to people and businesses in their neighborhoods. They may also sponsor local initiatives that improve community life.
- Personality plus: Whether it's a friendly branch in your local neighborhood or small-business services that make you feel supported, a community bank might "click" with you on a personal level.
Cons of Banking With a Community Bank
- Size matters: If you like and rely on a national network of branches and ATMs, a big bank might be more comfortable for you.
- Limited product range: Although community banks have many of the same products and services, you might appreciate the range of financial products at a big bank, including multiple types of checking, savings and credit card programs; elite investment services; or international money exchange.
- Digital demands: Many community banks are investing heavily in digital technology, but if you're stuck on specific big-bank technology—digital financial assistants, for example—you may have to shop around for a community bank that can meet your demands.
- Available alternatives: If there's no community bank near you, you may also like banking at a credit union—a not-for-profit financial institution that functions much like a community bank. If in-person banking isn't your priority, an online bank might deliver competitive rates and great digital access regardless of your location.
Should You Bank With a Community Bank?
If you're trying to decide whether a community bank is right for you, ask yourself these questions:
- Do you prefer face-to-face banking? Some people genuinely prefer anonymous banking, especially in the digital age. But if you like using a branch to deposit checks, talk with a loan officer or do regular business transactions like depositing cash, a personal approach could be a welcome change.
- Are you community-oriented? When you bank with a community bank, your money will be invested locally. An estimated 72% of adults prefer a bank based in their community, and 79% value having lending decisions made by local financial institutions, a 2023 survey by the Independent Community Bankers of America (ICBA) found. If the people, small businesses and organizations in your community really matter to you, you may enjoy participating in your neighborhood economy this way.
- Do you own a small business? A friendly community banker may be especially valuable if you own a small business and need help with loans, lines of credit, cash management and the many financial aspects of growing a business. Community banks issued 60% of all Paycheck Protection Program (PPP) loans and 72% of PPP loans issued to minority business owners during the COVID pandemic, exceeding the support given by much larger financial institutions, according to the ICBA.
- Can you find a community bank that fits your needs? This question may be the most important of all. If there's a community bank nearby that you think you'll love, check it out. If you can't find a community bank in your neighborhood that suits you, you may end up with a different alternative.
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 four 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 ICBA 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, sends volunteers to help in the community or offers financial literacy workshops might be the kind of bank you're looking for.
The Bottom Line
Before opening an account at a community bank, 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.