Should You Choose a Community Bank?
Life + Money

Should You Choose a Community Bank?

Here are five key questions to ask yourself before deciding

Katie Valentino, a licensed family therapist in the Chicago suburbs, recently pulled her money out of two large banks and moved it to a community bank.

Concerned about branch closings and aggravated by account fees, Valentino put the money into checking and savings accounts at hometown bank Itasca Bank & Trust Co.

"I know I can trust them with my money," says Valentino, owner of Vivere Counseling.

Rapid changes in retail banking have left many people wondering whether to choose big regional and national banks, or smaller local institutions. Personal finance experts say it comes down to how you want to access money and the type of relationship you want with a bank.

Rebecca Schreiber, a Certified Financial Planner in Silver Spring, Md., says the key is to determine your comfort level with a bank, rather than focusing on the institution's size.

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"Find a bank that will look out for you, instead of a bank you have to protect yourself from," says Schreiber, owner of Solid Ground Financial Planning. "That's not about size; that's about culture."

Financial experts suggest asking the following questions when choosing a bank:

How do you want to access your money?

If you want to visit a bank branch often, you may be happier with an institution near home or work, no matter its size, experts say.

But if a vast network of interstate cash machines suits you, a big bank may be best, Schreiber says.

"A lot of it comes down to time and convenience, and what's best for you as a consumer or business," says Jeffrey Hausinger, a Certified Financial Planner and senior financial adviser with Merrill Lynch in Tampa, Fla.

Randy Mitchelson, who runs online performance marketing company National Web Leads from Estero, Fla., prefers a large bank.

Mitchelson, a former banker in southwest Florida, says saving with a bank that has a national network of branches and ATM locations -- and that offers the ability to wire money over the Internet -- suits his company. Calling himself a "transaction heavy" customer, he chooses Bank of America for its sophisticated online banking capabilities.

What kind of banking relationship do you want?

Someone who engages in many personal or business financial transactions may find advantages to selecting a big bank, Mitchelson says.

For example, big banks have invested in upgrades to their back-office software that allow them to process high volumes of transactions. This means some banks can credit deposits made as late as 8 p.m. on that same calendar day, Mitchelson says.

However, if your goal is to forge a personal relationship with the bank, you can achieve that easier at a community bank, Schreiber says.

"If you like to talk to someone at a local branch, you're going to find that easier at a small bank or credit union." she says.

Hausinger says "a lot of people like the smaller bank because it has a hometown feel to it."

When taking out a loan, the size of the bank can cut both ways, Hausinger says.

A community bank usually will be more liberal in lending you money for a home or business, but bigger banks often will have more competitive interest rates on loans.

Do you travel extensively for business or pleasure?

Generally, a traveler wants the convenience of online banking, cash machines or a national branch network. A national bank is best suited for that, Mitchelson says.

"You can be dealing with the same bank in a number of states," he says. While a smaller bank typically offers Internet banking, you might not have the ability to deposit or withdraw cash on the road, experts say.

How safe is your money?

Your individual deposits, up to $250,000 per institution, are insured by the federal government, through the Federal Deposit Insurance Corp., at virtually all banks -- no matter the asset size or number of branches.

But "don't go over that FDIC limit," Hausinger says.

"We're in an age that we have to consider any bank, any size can fail," he says, noting the many U.S. bank failures that have occurred in recent years.

Who has the latest technology?

From the customer standpoint, big and small banks are almost equal in the technology used to enable you to bank online efficiently, experts say. However, if you want to take advantage of the latest trends -- such as banking on your mobile phone or making deposits in ATM machines without deposit slips -- a big bank is likely to stay more current with new technology, Hausinger says.

"Let that technology work for you," Schreiber says.