As if big banks weren’t busy enough arguing with the U.S. government and the media over their unscrupulous lending practices, large institutions are facing competition from a collection of credit unions and small community banks. Though many small banks are struggling to stay above water, they still offer an alternative to putting your money into a megabank.

Why are Customers Leaving for Credit Unions and Community Banks?

Some banking customers are drifting to smaller banks and credit unions because they’re considered more trustworthy and are thought to have the customer’s financial well-being in mind. Other consumers have abandoned big banks to avoid high interest rates, overdraft protection charges, high fees, and impersonal customer service experiences.

According to a report by the Credit Union National Association, savings deposits at credit unions grew by just more than 10% in 2009. Also, a February 2009 survey by the Independent Community Bankers of America revealed that new customers contributed to an increase in deposit accounts at 55% of community banks.

Why Credit Unions and Community Banks Are Enticing

Both credit unions and community banks sometimes offer better rates on their financial products, ranging from savings accounts to credit cards. Credit unions can do so because they return their profits to their members and community banks do so in order to bring in new customers and more deposits. Also, many — not all — credit unions and community banks offer lower fees because of this.

Dedicated customer service has always been the best selling point for credit unions and community banks because they manage a small customer base compared to the big banks that have to offer speed and convenience. The downside is that they cannot provide personal customer service on a 24/7 basis due to smaller call centers and limited hours of operation.

Credit Union or Community Bank?

While both financial institutions seem like equal alternatives to national banks, there are slight differences that could sway your decision between the two.

Community banks are essentially a bank — their business model has much in common with that of bigger banks. Small banks operate in order to produce a profit for their shareholders. But, in contrast to large banks, these community institutions normally service customers within the vicinity of their local branches.

On the other hand, credit unions are a owned by their respective members and are considered non-profit entities. All profits earned by credit unions are used to offer better rates and services to their members. Credit unions vary on their membership criteria: Some cater to a local area and some cater to specific groups of people.

The decision between a credit union or community bank should be based on personal needs and the financial products and rates offered.

LEARN: Credit Unions: What you Should Know

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  • nubankguru

    They are leaving for one reason, ACCESS to what they perceive are individuals who can take time to understand their needs and attempt to help them. Its not important that the need is satisfied at that moment but that its so noted and there is someone that has taken ownership of the concern or issue. Most people who use community banks are independent minded and they like the fact that someone at the bank shows an interest. Remember when we deal with our financial needs no one wishes to appear inadequate its ok not to know its bad to appear as if everyone else does and you can't. Community Bankers are unique in that they are a breed of individuals who really like helping others and take appreciation in their jobs for doing so. Have you gone to Wells Fargo lately and used the White phone? BANKALCHEMIST

  • Ace

    Interesting article. I have been giving my CU lots of business lately. They are more flexiblae and open than my mega bank. So I have been slowly switching all of my accounts to someone who really cares about me and my family needs. I would rather give my CU due to the fact that they are willing to lend compared to my bank.

  • Ace

    Interesting article. I have been giving my CU lots of business lately. They are more flexiblae and open than my mega bank. So I have been slowly switching all of my accounts to someone who really cares about me and my family needs. I would rather give my CU due to the fact that they are willing to lend compared to my bank.