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- Types of local banks include minority-owned financial institutions and community banks.
- Local banks are more closely tied to underserved communities than national banks.
- You may prefer a local bank if you want an institution that is closely involved with its community.
When it comes to choosing where you bank, there are dozens upon dozens of options. Big banks like Chase, Wells Fargo, or U.S. Bank may be some of the most obvious choices. But maybe you've also passed by a couple of local banks in your area.
If you're curious about opening an account at a local bank rather than a national one, here are a few things to consider.
Should I bank locally?
Banking is ultimately a choose-your-own experience: There are several options out there, each with distinct perks.
Think about what your want out of your banking experience. What do you prefer: a bank that serves its local community or a bank with a national presence? Once you determine your priorities, you can look for institutions closest to you and make your decision.
What are the types of local banks?
If you choose to bank locally, your choices largely depend on where you live. Here are a few types of local banks:
- Minority-owned or led banks (insured by the Federal Deposit Insurance Corporation)
- Minority-owned or led credit unions (insured by the National Credit Union Association)
- Community banks
- Community development financial institution funds (CDFIs)
A minority-owned bank is defined by the FDIC as owned by African Americans, Asian Americans, Hispanic Americans, or Native Americans; or has a majority of board directors and community members from these groups. The FDIC keeps a list of federally insured minority-owned banks through its Minority Depository Institutions Program.
Minority-owned credit unions need to have a majority of members, board of directors, and community members that are African American, Asian American, Hispanic American, or Native American. The NCUA has a database of federally insured minority-owned credit unions.
Community banks are part of a broader category of local and regional banks. According to the FDIC, community banks will have less than $1 billion in assets; loan assets make up less than 33% of total assets, and main deposits are equal to or less than 50% of total assets. Community banks also have to operate in a limited area.
In all, there are thousands of institutions that are considered community banks. You can use this search tool by the FDIC to see if a bank near you is a community bank.
Last but not least, CDFIs are nonprofits, banks, and credit unions that are mission-driven institutions that serve disadvantaged communities. Some CDFIs are also minority-owned credit unions or banks. For a full list of CDFIs, you can view this list created by the Community Development Financial Institution Fund, which certifies CDFIs.
Are local banks safe?
Silicon Valley Bank and Signature Bank shut down in March 2023. These big bank failures may leave you wondering whether a bank is safe. Are local banks more or less secure than regional or national banks?
As with bigger institutions, local banks are safe banking options as long as they're federally insured. Banks are insured by the FDIC, and credit unions are insured by the NCUA. This means that if a bank or credit union fails, money that was deposited into your account will be safe.
The FDIC and NCUA secure up to $250,000 in individual accounts and $500,000 in joint accounts. A bank or credit union will have a logo at its branch or on the website if it is federally insured.
If your bank fails, your funds will likely transfer to another federally insured bank. If another bank does not want to immediately take on your assets, you'll receive a check in the mail and can open a new account at an insured bank.
Pros and cons of local banks
While your local bank experience will depend on the specific bank you choose, here are some of the prominent pros and cons that these institutions share across the board:
How do local banks compare to regional or national banks?
If you compare local banks to regional or national banks, you'll find that local banks' weaknesses are usually larger banks' strengths.
National banks have the largest presence in the bunch and are charted by the federal government. When you hear a name like Chase, Wells Fargo, or Bank of America, it's immediately familiar — that's because national banks have a robust branch presence and ATM network.
Since national banks operate on a larger scale, they can offer more services and products than local banks. You may have a greater variety of account or lending options, but there may be more fees associated with these products.
National banks also tend to have better technology and customer service options, like live chat features on their websites or online banking tools.
Regional banks serve as an in-between option in banking. While local banks operate primarily in a few cities and national banks are available in most states, regional banks are located throughout a state or region. Beyond that, though, there isn't any set criteria to be considered a regional bank.
Regional banks may include a few of the larger minority-owned financial institutions and community banks. A few examples include East West Bank, SouthState Bank, and California Bank & Trust.
Remember, your money is not necessarily safer in a national or regional bank than with a local bank. The most important thing is that your bank has FDIC insurance, and that a credit union has NCUA insurance.