Little Banks, Better Deals

Stay close to home for lower fees, higher yields and easier loans.

Big banks are the bad guys these days. Uncle Sam’s cash infusion and their billion-dollar bonuses are stirring protests. Online campaigns try to persuade people to move their deposits; some state legislators want state funds to go to community banks and credit unions. Should you make the switch?

When it comes to safety, there is no difference between big and small banks. All FDIC members are insured up to $250,000 per depositor. But you’ll typically pay lower fees and earn higher interest at a smaller bank. Bank of America and Chase charge $2 to make a withdrawal using an out-of-network ATM. But First Savings Bank of Hegewisch, in Chicago, charges $1. Bounce a check and you’ll pay $35 at Bank of America versus an average of about $30 for all banks. A one-year certificate of deposit at Chase yields 0.25%; a top-yielding one-year CD from Tennessee Commerce Bank pays 1.7%.

Community banks also offer personalized service. They will often process loans more quickly, including smaller business loans that big banks avoid. And a local banker is much less likely to rely strictly on a formula to evaluate a loan. Kim Kaselionis, of Circle Bank, in Novato, Cal., says, “We take a more holistic approach. If you have a ding on your credit, we’ll let you explain it.”

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Big banks do have some advantages, including large branch networks, overseas locations and substantial technology budgets. Travelers who want ATMs wherever they go and tech-savvy customers who crave the latest upgrades in mobile banking should consider a big bank.

Senior Reporter, Kiplinger's Personal Finance