June 17, 2021

Who you bank with matters.

It’s not just a choice you should make blindly. Your bank helps you manage your money, protect your money, and grow your money. In most parts of the country, you have multiple banking options, including both local community banks and national banks.

The decision on which type of bank to use depends entirely on your goals and what’s important to you. In larger metropolitan areas, you often see more national bank chains such as Chase or Wells Fargo. However, in less densely populated areas and smaller cities, local banks are more common to see and service the community.

So what exactly classifies a community bank and a national bank?

Community banks offer more than just banking services. They offer a relationship that can benefit you throughout your life or entrepreneurial journey. These depository and lending institutions are available in large metropolitan areas as well as in rural areas. 

Unlike megabanks, community banks are entrenched in their communities. They support individuals, small businesses, and non-profit organizations through thick and thin. Their success is tied to their community and the customers they serve. 

Community banks are much smaller than megabanks which allows them to focus on building personal relationships with their customers, working to know and serve their needs on a case-by-case basis. However, being small doesn’t mean unsafe. Nearly all community banks are insured by the FDIC (Federal Deposit Insurance Corporation), which protects depositors up to $250,000 in case of a bank failure.

There are roughly 5,000 community banks spread across the United States. In a 2019 survey conducted by the Federal Reserve, 79 percent of community bank small business customers were reported to be happy with their lending bank. This is 12 percent higher than small business customers who had a loan with a national bank.

In a 2016 op-ed in The Wall Street Journal, JPMorgan Chase CEO, Jamie Dimon wrote about the attractiveness surrounding community banking.

“[Regional and smaller community banks] sit close to the communities they serve; their highest-ranking corporate officers live in the same neighborhoods as their clients. They are able to forge deep and long-standing relationships and bring a keen knowledge of the local economy and culture. They frequently are able to provide high-touch and specialized banking services.”

On the other hand, national or megabanks are commercial banks chartered by the United States Treasury and are required to be members of the FDIC. National banks serve both individuals and businesses of all sizes. These banks are publicly traded companies where any individual can buy and sell company stock. The four biggest banks in the United States include JPMorgan Chase, Bank of America, Wells Fargo, and Citibank. The majority of Americans do their banking at commercial banks like these.

What is the difference in experience between community banks and mega national banks, and what might be right for you?

Typical Mega/National Bank Experience

Megabanks have an extensive regional reach, if not national. In large metropolitan areas, they have numerous branch locations and ATMs. They offer their customers a nationwide network of banking locations, which prior to digital banking tools, helped people managing their money if they worked across the country or when traveling. Businesses with locations in multiple states may benefit from their multi-state branches.

However, while these giant banks may offer a wide selection of banking and loan products, the experience can be lacking. Clients regularly report feeling like a number and not recognized for their specific needs.  When problems arise, these banks are less likely to be understanding or willing to address your personal needs.  Their policies leave little wiggle room, and they are often less understanding of their customers’ daily lives and needs. They can be less flexible or forgiving regarding personal circumstances should you or your business have special needs or fall on hard times.

With national banks, there is less attention or focus on the local communities in which they operate. It is not feasible or in the best interest of megabanks to have a community-by-community approach. Whether it is supporting local non-profit organizations or civic improvement initiatives, historically, megabanks do not provide much in resources. Because they are publicly traded companies, their interests are hinged on what is best for investors and prominent stakeholders in the short term, not necessarily what best serves a community or customers over the long run. Nearly all revenue these banks generate is pulled out of their local communities and consolidated at their headquarters, rather than recirculating it within the local communities.   

Typical Community Bank Experience

Community banks approach banking with a much different mindset than megabanks. Their success is tied directly to the success of their communities. Community banks can range from one location to dozens, but they are usually concentrated within a localized geographic area. This has advantages in how operational decisions and loan decisions are made. Not to mention advantages to customers in the attention they receive.  

Technology is usually not an issue for customers of community banks. While some of the smallest banks may have fewer mobile or digital banking options, most community banks provide digital and technology services comparable to national banks. Services such as mobile apps, mobile check deposit, and online bill pay are commonly available. Business services such as direct deposit and wires are widely available with community banks. 

However, the biggest draw to community banks centers around the personalized attention and care they can provide. Rather than a sterile experience that feels like you’re just a number or another transaction, community banks often know their customers on a first-name basis. They understand their needs. They know what they do for a living and how their family is doing. Small business owners don’t feel overshadowed by large business customers because small business is a critical sector for community banks.

Lending decisions at a community bank are made locally, allowing their lenders more input. Community bank lenders have a better understanding of the challenges and opportunities that their customers face. They have a stronger relationship with their clients and can provide better insight.

Community banks are owned and operated by individuals who live in the community and often next door to their customers. They understand their community and the ongoing financial ups and downs of it. This information and participation in the community enable banks to make business decisions that are beneficial to the community. They don’t have to worry about being held accountable to wall street investors or megabank executives.

These smaller community banks are also a key player in helping uplift local businesses and individuals. Community banks tend to be more flexible and understanding with loans and accounts than national banks who feature a rigid set of guidelines and rules. They also tend to have lower fees associated with their products and services compared to their larger counterparts. Additionally, local banks are interested in investing in their own community through donations, sponsorships, and events that benefit their customers.

The Best Community Bank in Central Missouri

The Callaway Bank is a central Missouri community bank dedicated to building lasting relationships and elevating their clients and communities through moments that matter. Founded more than 160 years ago, they are still locally owned and operated. The Callaway Bank offers a strong selection of banking products and services to small businesses and individuals. See what their clients say about banking with them. Get in touch with them and learn how they can help you pursue your passions through moments that matter.