It's a David and Goliath debate: How does a local community bank stack up against a big bank? While we at Kasasa are squarely planted on Team David, and have been since our founding, we're not afraid to look at both banking options and find out which type of financial institution stands taller in the financial battlefield.
Let's state the obvious equities up front: Both will provide an account holder with a checking account and a savings account, and both lend money when it's time to buy a car or take out a personal loan. Of course, there's much more to consider from a community bank or large bank than these obvious services, so let’s examine the features that set each type of financial institution apart from the other.
Ultimately, the choice isn't just which one meets your banking needs. It's about which one taps into your wants — where you are in your life now, where you hope to be in the future, and what matters most as you move from one life stage to the next. Making a personal choice about whether you prefer a David or a Goliath to help you get where you want to be in the future begins with bigger variables.
Let's dig into this classic rivalry and see which weighs in your favor.
What are the features of a local community bank or credit union?
While there are distinctions between banks and credit unions, both entities have a similar mission driving their existence: They are here to help our communities thrive. Community financial institutions have distinct approaches based on the community they serve, but that's the common denominator — community.
A smaller bank or neighborhood credit union may have many of the same services you can find at any financial institution, whether it's the only credit union in a rural community or the towering hub of a giant commercial bank in the center of a major city:
- Cash a check at a drive-through teller? Check.
- Utilize a night deposit box after hours? Check.
- Open a student savings account for your granddaughter? Check.
- Log in to the online bank while you wander around the house in your pajamas? Check.
Consider, however, that at a local community bank, the teller may recognize someone by more than the name on their picture ID. They might also develop a personal relationship that protects the account holder's security because they recognize that individual’s banking behaviors.
Perhaps a woman uses the drive-through several times a month to add a few dollars to the savings account she opened for her granddaughter more than a decade ago. At her credit union, though, the tellers know her well and remember to let her granddaughter know that now is the time to apply for their annual scholarship giveaway.
At a community bank, applying for a home mortgage becomes a celebration of a family's efforts to plan and save for their first home. The money borrowed from their local lender for the down payment on a young family’s home comes from the deposits of others in the community who also support and strengthen the banking pillar. The community's wealth helps families and businesses build and grow in the same community. Such connectivity delivers a much broader purpose tied to the values and ideals of the neighbors within the community — everyone supporting one another.
The greatest features of a local community bank or credit union are the long-term, meaningful impacts that their financial products and services enhance, rather than the banking products themselves.
What are the features of a larger bank?
Known as megabanks, national banks, or simply big banks, the advantage of a large, coast-to-coast, multi-national financial institution is obviously its size. Rather than a handful of branches in a single state or region, a larger bank is spread wide across the country, which is a perk if you’re constantly on the move and only want to use a single bank's owned-and-operated ATMs and branches.
Much like a big box store or an online warehouse of products, you absolutely can find a wide range of financial products and services from megabanks, including some that you may not be able to find anywhere else. One of the biggest bonuses of a larger bank is the array of products: investment accounts, commercial loan offers, cash apps, and HSA accounts, plus zippy names for everyday services, like "Spend" and "SpotMe". The reality for most families is that a 401k and a credit card and student loans are spread across multiple financial institutions. Such a wide array of financial products leads to a collection of apps taking up GBs on your smartphone, and multiple passwords to remember and secure.
Speaking of banking on a mobile device, Gen Z account holders who have always utilized smartphones in their daily lives might not even need to step foot into a branch or pull cash out of an ATM, which is one of the reasons neobanks have emerged in the past decade. Keep in mind, though, that if you need specific assistance — for example, getting questions answered about the loan approval process or negotiating a lower interest rate — personalized service might be the sacrifice for an on-the-go, web-only option.
Ever-changing technology may be the hallmark of a megabank, which became readily apparent during the pandemic. Closures and social distancing measures necessitated an increase in online banking and mobile app usage. Making deposits, transferring money to friends and family, and streamlining bill payment are technologies that megabanks have been offering for a while. While a small bank may not offer brand-name, integrated, money-sharing features, these technologies are becoming more readily available through community banks, and often without the attention-grabbing, big-dollar eyes 🤑 of scammers.
There are definitely upsides to the megabanks' go-big-or-go-home approach, but they aren't always perfect for your individuality. They are designed to support size: a large number of consumers across a wide swath of the country, not focused on the community where you live.
Local bank vs national bank
Looking past the commonalities (yes, they all offer a basic bank account), consider where local banks exceed the competition, and where national banks sparkle and shine.
Big banks have far deeper pockets to create state-of-the-art technologies on a massive scale. Are local banks and credit unions able to keep pace? It may surprise you to learn that they do!
Kasasa works to support community banks and credit unions by providing the financial and technological (aka, fintech) resources that enable small institutions to keep pace with megabanks. While they may not have every flashy bell and whistle, technology makes life simple and convenient, and most community financial institutions are working to make that possible for their account holders.
Now, let's compare fees. Between the megabanks and the community financial institutions, which is more focused on profits? Which has higher fees, even for common services like a checking account, and which is more likely to offer a reward account to help make banking a little easier? Which prioritizes a local business over a big business and provides personal service to help mom-and-pop businesses succeed?
Maybe you aren't running your own business and relying on these kinds of financial services, but if you believe in shopping local, eating local, and supporting your local economy through growth, employment, and development, sending money off to a megabank is counterproductive to all your efforts to help your community thrive.
In fact, that might be the defining factor when weighing the difference between a national vs local bank. What community bankers offer, megabanks can't touch. The priority local banks and credit unions place on the local economy and the success and strength of the community doesn't have large-scale equivalents.
When an entrepreneur wants to take out a small business loan, they are far more likely to receive one from the bank in their own town than from national lenders that place a higher priority on billion-dollar corporate lending. When your community organizes and hosts a softball tournament, it's the local bankers and businessmen and women who are working the concession stand, cheering from the stands, and sponsoring the event.
Everyone has their reasons for why they bank where they bank. Just as often, individuals can name shortcomings about their financial institution. Maybe your credit union makes funds available the day before you are actually scheduled to get your direct deposit. Maybe your megabank offers promotions to win cash into your account (and what are the odds of winning among millions of others vying for those bucks?).
In the end, do you look at your financial success and the success of your community and say, "I am proud of myself and the way I manage my money"? Do you pride yourself on making the best financial choices to align with your goals, ideals, and values? Unfortunately, there’s no megabank app for that, but maybe we can point you in the right direction...
Discover more about Sustainable Banking in our previous blog post, "Let's check out your local economy."