Big Banks vs. Community Banks and Credit Unions

Last week, I talked about the differences between banking online and using traditional brick-and-mortar banks. A few observant readers correctly pointed out that I had neglected the topic of community banking entirely. Thankfully, that’s because I had this very post in mind.

Community banks and credit unions are a unique “middle ground” between mega-banks (think Citibank, Chase, Wachovia) and online banks (like ING and Ally). They have some of the unique pros of both.

Most of you are familiar with community banks and credit unions. Almost every city or town, however large or small, has at least one. Where we live, there is one prominent credit union, and about 10-15 community banks that operate only in our area.


Credit unions and community banks are not the same thing, but I think their benefits are similar enough to make them comparable in relation to “mega-banks.”

A community bank is one that’s typically operated on a local level, with all decisions being made locally and by local employees. According to Wikipedia, community banks represent about 94% of the banking industry.

On the other hand, a Credit Union is a cooperative bank, which means that it’s owned and controlled by the people who bank there. While in my experience, the majority of credit unions are also community-based (they operate locally), this isn’t necessarily a requirement.

With that in mind, let’s take a look at some of the pros of banking at each type of institution:

Pros of Mega-Banking

Banking with mega-banks is a bit of a trade-off between convenience and annoyance. Here are some of the major benefits of big-bank accounts:

  1. If you use a mega-bank, you will have branch access almost anywhere you go (some even internationally!), meaning less costly banking for ATM use and other access methods.
  2. If you move frequently, there’s a better chance that you won’t have to switch banks every time.
  3. Online banking will be more powerful and feature-rich, as mega-banks invest more as a whole in their web development.
  4. You’ll experience more uniformity in services at each branch due to the “corporate standards,” while community banking will be largely up to the individuals running that branch (often, the bank’s only branch).
  5. Because of cost structure, some mega-banks are able to offer more competitive accounts, such as free checking for businesses.

Pros of Community Banks & Credit Unions

On the other end are community banks and your friendly credit unions. Here are some of the benefits you can expect when banking with those:

  1. You’ll experience more personal service—in other words, you’ll be more than an account number. I’ve found a few exceptions with mega-banks (Suntrust being the most noticeable), but most of it is superficial.
  2. Banking decisions are made locally by people that (at least claim to) understand the local economy and the challenges customers face.
  3. You can negotiate. For example, a friend of mine was able to get a land loan when few others could, by meeting with the bank president and making his case.
  4. Before the days of 0.01% interest rates, community banks were able to offer very competitive interest rates. Many credit unions still do, but most fall shy of what online banks can do.
  5. Your fee structure will be a bit more forgiving. Local banks will be more reluctant to charge you strange fees just to make money because they’re either trying to win your business or are member-controlled (as in credit unions).

Which is Better?

It’s a tough call, because everyone has different priorities. For example, I prefer a mega-bank for its convenience, online banking, and types of accounts available. My wife prefers credit unions for their customer service, community approach, and services offered (coin cashing, etc.).

What ‘s your preference and do you see any other benefits either one offers?

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4 thoughts on “Big Banks vs. Community Banks and Credit Unions

  1. I prefer my credit union account. Recently, CUs have really been catching up with big banks for most of the mega-bank pros you mentioned. A number of credit unions and small banks have joined together in sharing ATM access, so I can find fee-free ATMs around the country. I moved far away from my CU several years ago, but they are really great at doing paperwork over the phone/via fax/online/etc. The website, while not perfect, does everything I need it to and more. While not all CU are equal, there are some really great ones out there that offer all these things.

    1. I agree, Beth–I’ve seen things moving up in the last 3-5 years, especially on the online front, and in ATM access. I still like to have local branch access, but thankfully we don’t expect to move very much so that’s not an issue for me.

  2. I agree that it all depends on what you prefer when it comes to your banking. I know that my parents wouldn’t give up their credit union accounts for anything but then again they hardly know how to turn on a computer!

    I do like the mega-banks because of convenience and being able to bank online, but sometimes I do miss the personal attention you get at smaller banks and credit unions.

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