I have been trying to convince my wife to switch her checking account away from Bank of America; I’m not a fan. Recently, on my post on leading financial iPhone apps, two readers asked why. Although there are pros and cons to banking both with large “megabanks” and local banks and credit unions, I’m a firm believer that most of us are better off banking with small, community banks or credit unions.
Why We Use Megabanks
There are two big reasons most people I know use Bank of America or other megabanks (Citi, Wells Fargo, Chase):
- Megabanks’ size provides a sense of convenience (e.g., nationwide ATMs).
- Megabanks have bought up smaller banks and converted customers’ accounts. (And customers don’t switch away).
A huge ATM network seems like a plus, and big banks do offer other perks, like iPhone apps and fancy programs that round up your debit card purchases and put the difference into savings. But still, for average individual banking customers, bigger isn’t necessarily better.
Yes, there are more megabank ATMs worldwide, so you may be more likely to find one when you’re away from home (and thus avoid a fee). But just because they have a huge network doesn’t mean you’ll find an ATM when and where you need one. And megabanks are more likely to charge you a fee for using another banks’ ATM (in addition to the fee the ATM bank charges). Bank of America currently charges customers a $2.00 fee for using a non-B of A ATM ($5.00 outside the US).
The Customer Service Myth
Next comes convenience, like 24/7 telephone customer service. But recall the last time you called a huge company’s 800 number. Was it a pleasant experience? Perhaps you were put on hold or you wound up talking to somebody who just read from a script and tried to sell you something.
Every time my wife calls Bank of America for a routine account change, she waits; and something gets screwed up.
She called up over a month ago to change her name after we were married. They said it would take seven to ten days for her new debit card to arrive. It hasn’t come. Nor has any indication they processed her name change. Looks like they totally “forgot”. Another time she called, the operator pitched a credit card that my wife had no interest in. My wife said “no, no, NO!” Guess what came in the mail a week later? The credit card she made very clear she did not want.
In my humble opinion, no matter how hard big banks try to spin their customer service, you’ll always be dealing with a big corporation in which you’re just a number and a potential profit.
Why Small Banks and Credit Unions are Better
I have held my primary checking account with two institutions: Formerly I banked with a Massachusetts credit union; now I’m with a small Maine community bank. They offer “all the basics” that big banks do: Free checking, online account management, and bill-pay. But the following are some benefits I’ve experienced with these community financial institutions that you won’t find at the megabanks:
ATM Fee Refunds
My current bank refunds any ATM fee charged by any ATM, anywhere in the world. Immediately. No limit, no exceptions. Whether I get charged two dollars, three, or even five, they put the money back in my account the next day. I’ve withdrawn cash in the Caribbean and Eastern Europe. The fees have been reimbursed. My old credit union refunded ATM fees too, but they did it once a month and had a cap on how much they would refund each month. Either way, these perks mean I can use whatever ATM is convenient without worrying about fees.
Real Customer Service
When I call up my bank, I get somebody on the phone immediately who is in-state and who sounds like they value my business. When I walk into a branch, I’m treated like a person, not just a profit opportunity. I can ask to speak with a branch manager who is not just a cog in the wheel of a giant national corporation, but who has real decision-making authority.
When you apply for a credit card, personal loan, or mortgage with a big bank, you really are just a number. They look at your credit, assets, and debts and make a decision on whether to approve you and for what rate. End of story. At small banks or credit unions, you can sit down with underwriters who will listen to your situation and make personalized recommendations. Of course, I’m not going to sugar-coat this: Small banks and credit unions still want to lend you money (and earn interest from you), and they’re not going to give you a loan if your credit stinks. You do, however, have the opportunity to put a face on your loan application, which can make a huge difference.
As an example, when small banks and credit unions write a mortgage, they don’t sell it to investors. They hold it. That means that they’re not going to make a home loan they know a customer can’t afford. That’s why local financial institutions aren’t nearly as affected by mortgage defaults and foreclosures as the big boys. And that means that small banks’ customers are still able to afford their mortgages—and are staying in their homes.
Banking is a competitive business. Remember when I said that a lot of people I know are with megabanks because those banks bought up smaller banks and migrated their accounts? Changing banks is intimidating, and most of us don’t do it unless we become really fed up with our current bank. To win new customers, small banks and credit unions often offer much better rates on CDs and loans, and even checking accounts, like a 4.01 percent checking account at one credit union.
My old credit union consistently offered auto loans at a point or more below anybody else. They issued credit cards with eight or nine percent fixed interest rates, compared to 12, 15, or 20 percent rates offered by the big issuers.
- Find Top Rates: MoneyAisle searches top bank rates in your area.
The Bottom Line
No single bank or credit union “has it all”. Those that offer unlimited ATM refunds may not have the top savings rates; big banks that have ATMs and branches everywhere charge more fees to pay for all of that infrastructure. But in my experience small banks and credit unions (which, by the way, are non-profit, and reinvest earnings in perks and lower rates for members), consistently deliver personal service and a much better value than the megabanks.
What do you think? Let us know where you bank, and what you like about your institution. Can you defend Bank of America or another big bank? Love your credit union? Have a horror story? Share your story in a comment!