Small Is Beautiful

Why community banks are suddenly a big hit with consumers

Although some smaller banks have run into trouble, “most of them avoided the crazy loans made by so many larger banks,” says Greg McBride, senior financial analyst at Bankrate.com. Thus, many community banks, including credit unions, are still making loans. A good number are also offering higher yields and lower fees than their larger competitors to attract deposits.

Sure, your local community bank might offer half a percentage point less on a money market deposit account than you could find online: that’s $50 a year (before tax) for every $10,000 you keep there. In return for giving up a smidgen of yield, you have the opportunity to deal with real people, face-to-face, and to resolve any problems personally. Mell Monroe, for instance, says he loves the fact that customer service reps at Illinois Service Federal recognize his voice when he calls.

Of course, there can be some drawbacks to community banks. For example, some offer limited products and services. Your local bank may not offer as many mortgage options, investments, annuities, and financial advisory services as JPMorgan Chase or Bank of America.

Even so, your local bank might offer you the best (or only) deal you’ll find. “Officers and directors of local community banks have often lived in the same small town their entire lives,” says Bedda D’Angelo, president of Fiduciary Solutions, a financial planning firm in Durham, North Carolina.

“If you start hanging around the local Chamber of Commerce, you will meet attorneys, real estate agents, and bankers who went to school together and do business together. One of my former clients bought her house from a real estate agent who talked the executive lending officer of the community bank into approving a mortgage. The transaction would never have met Fannie Mae standards, but she got her loan.”

For customers like the Monroes, community banks are living up to their name as vital economic engines in their local environs. The couple is preparing a business plan to turn their five-bedroom 1890s historic Bronzeville home into a bed-and-breakfast. Where do they hope to get their small business loan?  Illinois Service Federal. Says Monroe, “When I talk to friends now who bank with those big, national banks, I ask them: ‘Do they really know you?’”

– John Simons contributed to this article.

This story originally appeared in the July 2009 issue of Black Enterprise magazine.

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