Big Banks vs. Small Banks: Which are Better?

Chase Bank Branch

To go with the mega-bank or the community bank?

You're likely to ask this question on your search for a new bank.

The strong physical presence of a big bank is tough to ignore when you want a high level of convenience. But, smaller banks may be seem as less profit-hungry institutions that aim to stand by their customers.

The truth is:

When choosing a bank, the most important question is not, "Do I prefer a big or a small bank?" but rather, "Which bank is best for me?"

Advantages of Big Banks vs. Local Banks

Big Banks Local Banks
Widespread ATM and branch access More intimate, personal service
Better and faster technology and adoption Community-oriented products and services
Uniform service standard across branch network More willing to negotiate and work with customers

Big Banks vs. Small Banks: What's the Difference?

Financial institutions in the United states can generally be divided up into three subsections: large banks, community banks, and credit unions.

Large banks commonly have $500 million or more in total assets.

Community banks are smaller: usually under $500 million in assets.

Credit unions are different. A credit union is a financial institution that is cooperatively owned by its members. They typically claim about the same total assets as community banks, and 75% of them have less than $100 million in assets, but their size can vary widely.

Generally, in the big picture, credit unions are closer to community banks.

Advantages of Big Banks

Big presence

They operate massive branch and ATM networks -- making it convenient for many customers. (The commonly seen signage of bank logos also help their marketing efforts.)

You may be able to access a bank's branch on separate coasts simply because it has locations everywhere. 

Comprehensive products and services

Big banks became big for a reason.

They tend to offer a highly comprehensive list of financial accounts and services. From deposit accounts to loans to investing to wealth management and more, big banks aim to be the one place where you hold all your money.

Tech-forward

Let's face it:

Technology is a key part of how consumers conduct their banking. Online and mobile banking increases convenience to the point where many people don't even have to visit a branch.

Bigger banks tend to put in the investment to adopt and pioneer new financial technologies that can improve the service provided to customers.

This means they're the ones showing proof of concept. If a new digital feature becomes a standard at big banks, it's likely to end up being available to smaller banks (it'll just take longer for them to implement).

Advantages of Small Banks

Personal service

Many small banks, community banks, and credit unions offer better customer service than the large institutions do.

It's simply easier to have a personal touch in a smaller setting. Bankers may remember your face and name and that level of attention can make you feel safer about having your money with that bank.

Community-based

Smaller banks can serve as the financial hubs for a local community.

They feel responsible for the financial of well-being of the nearby residents and aim to do better for them.

For example, community banks may offer certain small business loans to people who want to open a business in the area -- helping to spur the neighborhood economy.

Negotiate

Big banks have financial products with fees and interest rates that are set across the board.

There's little wiggle room.

Community banks may be more likely to work with customers on a case-by-case basis to see how they can provide a service to clients.

Examples include:

  • Waived certain account or service fees
  • Reduced interest rates on loans

Weighing Your Options

Weighing pros and cons always comes down to what is most important to the person doing the tallying. Now more than ever, it pays to shop around.

Some of the questions you need to ask include:

  • Are the banking services offered sufficient?
  • Is the cost of doing business low?
  • Is the customer treated fairly?
  • Is the institution's online presence is up-to-date?

In many cases, there is no downside to going small and independent, but your options could vary widely depending on where you live.

What are you looking for in a bank? How you answer that question could go a long way toward determining if you would be happier with a large bank or a small bank.

Here are the top online banks that have highest savings accounts rates and free interest checking accounts:

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