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A Case for Local Banks and Credit Unions

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.

ATMs Everywhere

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.

Personal Lending

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.

Better Rates

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.

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!

Published or updated on November 16, 2009

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. Carol says:

    I will take a credit union any day of the week over a big bank. I have been with one for 5 years now and no complaints.
    The large banks have shafted so many people, I figure sooner or later it will be my turn. There’s no honor among thieves!

  2. Vnach says:

    BofA sucks!!

    I travelled outside USA and I had to withdraw some money from international ATMs.

    My daily withdrawel limit was just $600 and I finally ended up paying nearly $100 as Foreign transaction fees to BofA…There were some fees which still I m not aware of..

    So I swithched my bank—- to CITI BANK !!!!!

    Thanks for this article, let me check some small banks and credit unions..
    Anyone has any recommendations? I live in Miami…

  3. sofia says:

    I just closed all my accounts with BOA (savings, checking and credit cards). It’s such a huge weight off my shoulders- and now I only deal with credit unions. They do offer much better loan rates for my car and debt consolidation. I can honestly say I am happier without BOA in my life.

  4. mklauber says:

    One thing I’ve learned to do as a college student which makes using small banks easier, is to a) get a debit card and b) use the cash back feature of Walmart. especially in the midwest where I’m located, there may or may not be an ATM, but there is a walmart, and I can get $100 cash back from there anytime I shop. Makes keeping some cash in the pocket easier, an means I only need to go to a bank or ATM to cash a check.

  5. Z says:

    I did a bunch of research recently, and I would highly recommend checking out Schwab’s checking and savings account. Their checking has a .75 APY (which is extremely high for a checking account), unlimited bill pay, unlimited ATM reimbursement, outstanding customer service, no minimum balance required, free checks… it’s really sweet.

    Plus they have the Schwab Visa card, which gives 2% cash back on everything. Everything! That’s also good stuff.

    Check it out and compare it to your current bank… I did and I immediately switched to Schwab.

  6. I’m a huge proponent of local credit unions. However, I’ve been a 7 year member of what is now one of the largest credit unions in the country and watched them change drastically. Lately it seems as though the bad experiences with them seem to be piling up and I will probably be switching to a smaller more localized cu. I stay away from big banks and enjoy the personalized services and competitive rates of the credit unions.

  7. Wojciech says:

    My wife absolutely loves credit unions, and I think she (and you) both make great points on their benefits. However, there are still a few reasons why I continue to stick with a big-name bank:

    – Access to ATMs and branches (as you mention), but even on a local level. I like being able to find a branch nearby anywhere I happen to be in the city.
    – Access to a safe deposit box (the local credit union in our city doesn’t have safe deposit boxes–strange)
    – I’ve never really had a problem, fee, or customer service issue with my bank. Granted, I have had these problems with other big-name banks, but finally found the one that seems to work just fine. 4 years and counting.
    – Online features. Yes, I do love the bells and whistles. Call me shallow, but there’s something about a sleek bank website that just calls to me. The cooler the better.

  8. Many credit unions offer shared branching and participate in a surcharge free ATM network. This allows them to have over 3,500 branch locations nationwide and more than 35,000 surcharge free ATMs. Both of those numbers are broader than most mega banks.

    So now you can have the best of both worlds with a credit union; great service, great rates AND great access.

  9. Johanna says:

    I have done all of my banking with a local credit union since I was 16, and I can’t be more happy with them. The service is personal, I get a real human, they don’t charge ATM fees (I don’t think they refund either, since I stick to surcharge free ATMs at Wawa, a local convenience store chain), I get interest on my checking account as well as my savings, I have my primary credit card with them, I can do all my banking online.

    Other members of my family had tried to bank with small, local banks, but they kept getting eaten up by megabanks. So now we’re all at the same credit union, and transferring money to each other (to pay back the person who picked up the whole tab at that restaurant, say) is easy, simple, fast and free.

    The only contact I have with a major bank is my secondary credit card, which I only use rarely. The bank it was with was big and got eaten by a megabank. Haven’t been happy with them, but I have a high credit limit with them, so I’ll keep it open.

  10. John Hunter says:

    I strongly agree. I have used small banks and now credit unions at all times. The large banks treat you as someone to trick out of money. I do not want to have to watch my bank like it is some criminal trying to take my money. I want to work with people I trust. I don’t understand how anyone could trust large banks.

  11. Honey says:

    Your online banking reasoning sounds the same as mine. And I will freely admit that I don’t know anyone else who’s had as positive an experience with BOA as I have – I seem to have some kind of gift for disarming bank employees :-)

  12. David Weliver says:

    Thanks for sharing, Honey, good to hear some good things about B of A; those are certainly some positive reasons to bank with them.

    I’m a fan of online only banks too as a supplement to a bank with branches. I use ING Direct for my emergency savings, too. I have an Electric Orange account too but I have to say it’s unused at the moment.

    I considered going online-only for checking, but ran into two problems:

    Although ING has a decent ATM network, they’re in odd locations like Target stores and gas stations. Otherwise, I would have to pay other banks’ ATM fees.

    Secondly, I occasionally have cash to deposit…if I sell something on Craigslist, win big at a poker game :), etc. Online-only banks don’t have a solution to make cash deposits.

  13. Honey says:

    I love Bank of America. My credit card with them has a 7.9% fixed rate, and as far as my checking goes – both when I have gone into a branch and when I have called their customer service line, I’ve gotten free account upgrades and also had overdraft fees that were MY FAULT waived.

    I use their Keep the Change service which rounds up every purchase I make with my debit card to the next dollar and deposits the difference into my linked savings account. I love their Net Worth tracker and use their automated bill pay to do all my bills.

    What do you think about online-only banks? I have an ING electric orange checking and an orange savings account as well, and have been very happy with them although I use it for my emergency savings, which I never touch.

  14. I also have a local bank, and love it for all of the same reasons. They have online banking/bill pay, just like the bigger institutions, and refund ATM fees. But I’ve never had to use an outside ATM as of yet! =)

  15. ninja says:

    I’ve been contemplating making the switch from big bank to small bank, but plan to move in a year or so. I figured it would be best to wait to make the switch until I knew exactly where I’d be living. Do you agree?

    • David Weliver says:

      I’d probably wait too if I were you, Ninja. The advantage big banks have with branches in every town make them work for people who are on the move. It probably doesn’t make sense to switch banks now only to switch again in a year.

      I did, however, keep my Mass. credit union even when I was in college in Maine and living for a year in New York City. They reimbursed ATM fees, and I could mail checks to them using postage-paid envelopes. Not a perfect solution, but I rarely missed having a local branch.

      I switched to the local bank when I knew I’d be settling in Maine for the foreseeable future.

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