Community banks offer products such as deposit accounts (savings accounts, money market accounts and certificates of deposit) and loans primarily to those who reside in the neighborhood where the bank is located. These banks are often known for providing friendlier, more personalized service than larger, national banks.
Because many areas of the U.S. are not served by larger banks, community banks often play a vital role in providing local banking services to consumers and businesses, according to the Federal Deposit Insurance Corporation (FDIC).
Whether a community bank is right for you may depend on the type of products and services you’re seeking. Here are the pros and cons of community banks.
Key takeaways
- A community bank offers deposit accounts and loans mainly to local residents and businesses.
- Community banks are those that have under $1 billion in assets, according to the FDIC.
- Community banks commonly offer personalized service and investment in their communities, and some charge lower fees than big banks — although their offerings may be more limited than those from large banks.
What is a community bank?
Community banks are commonly defined as individual banks that have less than $1 billion in assets, while community banking organizations generally are those with under $10 billion in assets. There were 4,230 community banks in the U.S. in 2023, according to the FDIC. In its most recently reported branch count, the FDIC stated there were more than 29,000 community bank branches in 2019.
Since community banks are often privately owned, they tend to focus on their communities’ interests rather than capital market demands, according to the FDIC.
Pros of community banks
- Personalized service: Community banks are commonly owned and managed by people who live near the bank. As such, bank employees may have long-standing friendships with customers and be able to provide more personalized service.
- Local investment: A bank’s focus on giving loans to those in its own community helps local businesses and residents thrive.
- Relationship banking: Community bank officers may take into account discretionary spending and family history when making loans, rather than relying solely on impersonal data like credit scores, according to the Independent Community Bankers of America (ICBA).
- Community service commitment: Like other local businesses, neighborhood banks often give back to their community through volunteer work and supporting local charitable organizations.
- Lower fees: Some community banks charge lower fees than national banks. For instance, fees for overdrafts and nonsufficient funds (NSF) are 13-19 percent lower at small banks and credit unions than at large banks, according to a 2021 report from the Consumer Financial Protection Bureau.
Cons of community banks
- Limited number of products and services: While community banks typically offer deposit products and loans, they might not have some of the specialized products more commonly offered by big banks such as credit cards and investment services.
- Fewer branches and ATMs: Unlike national banks, you’re less likely to have access to a branch when traveling, and the network of ATMs may be limited. However, some banks reimburse their customers for fees associated with out-of-network ATM use.
- Less robust digital banking: The digital banking offerings of community banks may be less sophisticated than those of national banks. Smaller banks may also have fewer resources to devote to the security of their digital banking systems.
Deciding between a community bank and a national bank
A community bank may be worth considering if you prefer to use a financial institution run by people who live in your community, as well as one that focuses on providing deposit products and loans to local residents. It’s also a good option for those who prefer a bank that invests time and resources in local charities.
A big bank may be a better option for those who are seeking a larger network of branches, a more robust mobile app and a fuller suite of products and services.
How to find a community bank
Community banks commonly advertise, so keep an eye out for their ads around town or in your local newspaper. Since they often sponsor community events, you may also see their name on signs and banners.
You can also find a community bank near you on the ICBA website.
Bottom line
Community banks offer an array of unique benefits and are often sought out by consumers who prefer a more personalized banking experience. They often contribute to their communities by supporting various neighborhood initiatives and charitable organizations. In all, they play a vital role in providing local banking services, including in areas that otherwise would not offer a bank branch.
FAQs
Community banks commonly offer personalized service and investment in their communities, and some charge lower fees than big banks — although their offerings may be more limited than those from large banks.
What are the advantages of a community bank? ›
The close-knit nature of community banks allows for a more responsive and personalized level of service. Business clients often benefit from direct access to decision-makers, which leads to quicker loan approvals and more flexible problem-solving. Personalized attention isn't possible at larger banks.
What are the positives and negatives of banks? ›
In conclusion, traditional banking offers a range of advantages such as personalized customer service, physical branches, and a sense of security and trust. However, it also has its drawbacks, including potential fees, limited accessibility, and lengthy processes.
What are the top issues facing community banks? ›
2024's Foremost Challenge: High Interest Rates
According to findings from CSI's Banking Priorities Executive Report, 35% of community financial professionals listed interest rates as the most pressing issue, surpassing all other concerns.
What are disadvantages of banking with small or community banks? ›
Smaller community banks do have some disadvantages, of course. Because they have fewer assets, they may not be able to service every type of lending activity. In addition, many of them have a limited number of branches, and may offer fewer financial services than their larger competitors.
How safe are community banks? ›
Finally, community banks are often insured by the Federal Deposit Insurance Corporation (FDIC), which means that your deposits are protected by up to $250,000 per depositor but can be structured to cover a larger amount on your account.
What are 2 benefits of using a local community bank? ›
Community banks offer several advantages for small businesses:
- Relationship-Based Banking. ...
- Decisions with the Community in Mind. ...
- Faster Decisions. ...
- Local Networking. ...
- Collaborative Lending. ...
- Personalized Attention. ...
- Full List of Services. ...
- Lower Fees.
Limited number of products and services: While community banks typically offer deposit products and loans, they might not have some of the specialized products more commonly offered by big banks such as credit cards and investment services.
Are community banks better than big banks? ›
Higher Quality Service: Smaller banks tend to have less employee turnover than larger institutions. Employees at community banks form deeper relationships with their customers, leading to higher quality service and flexible decision making.
How do community banks affect the economy? ›
Community banks are much more likely to provide microloans to small businesses, which makes economic sense: Community banks build more diversified loan portfolios by extending many microloans rather than fewer big loans.
Commenting on the Q1 2024 profit declines for many community and regional (i.e., “Main Street”) banks: “The results underscore the uneven toll that two years of higher interest rates have taken on regional banks, which tend to have plain-vanilla businesses taking in deposits and loan.
Why community banks matter? ›
What sets community banks apart. Local Focus: Unlike larger banks that may take deposits in one state and lend in others, community banks channel their loans to the neighborhoods where their depositors live and work, which helps local businesses and communities thrive.
What are the challenges of community banking in 2024? ›
Theme 1: Interest Rates Are the X Factor of 2024
The high-for-longer interest rates prompted by pandemic-related inflation continue to dominate concerns and activity at community banks. Partly it's because high rates, after more than a decade of cheap money, can mean big disruptions.
How do you tell if a bank is a community bank? ›
What is a community bank? Community banks are well established financial institutions that operate within the communities they serve. They are small businesses themselves, so they are nimble and responsive to community needs.
What is the difference between a community bank and a regular bank? ›
Unlike banks that may take deposits in one state and lend in others, community banks channel most of their loans to the neighborhoods where their depositors live and work, helping to keep local communities vibrant and growing. Community bankers are typically deeply involved in local community affairs.
Do community banks have lower interest rates? ›
Community banks often offer more competitive interest rates on deposits and loans. They have lower overhead costs and can pass those savings on to their clients through higher interest rates. They also charge lower fees for banking services, from checking account fees to ATM fees.
What is the purpose of a community bank? ›
For example, community banks focus on providing traditional banking services in their local communities. They obtain most of their core deposits locally and make many of their loans to local businesses. For this reason, they are often considered to be “relationship” bankers as opposed to “transactional” bankers.
What makes a community bank different than commercial banks? ›
Community banks operate very similar to large banks, except they focus on funneling local money back into the communities they serve. This approach helps local small businesses grow and create local jobs.
