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How Are Local Small Banks Different From Large Banks?

By Rebecca Lake · July 07, 2022 · 8 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How Are Local Small Banks Different From Large Banks?

When comparing small banks vs. large banks, some differences are immediately apparent, such as geographic footprint, assets, and the range of products and services they provide. Small banks may offer more personalized customer service and products, while big banks may offer a more comprehensive banking experience, with an array of deposit accounts, loans, insurance, and wealth management.

So which is better, a small bank or a large bank? While the answer will depend to a large degree on your own particular needs and goals, it’s important to know what each option offers. Here’s a closer look, including:

•   The different types of small banks

•   How small banks vs. large banks compare

•   The pros and cons of small local banks

•   Tips for choosing a bank.

Types of Small Banks

What exactly is a small bank? According to the FDIC’s definition, small banks are banks with assets of less than $1.384 billion for either of the two calendar years prior to December 31, 2022. That might not seem all that small, but it’s a fraction of the trillions of dollars in assets that some larger banks maintain.

Small banks can also be defined as commercial banks of modest size. So what is a commercial bank? Simply, it’s a bank that accepts deposits, offers savings accounts, and makes loans to customers.

When thinking about or considering whether to do business at a small bank, it can be helpful to know the most common types. These include:

•   Community banks, a financial institution that accepts deposits and lends funds while serving a small geographic area.

•   Regional banks, which are larger than a community bank and may take deposits from throughout their state.

•   Savings and loan associations, which are financial institutions that are primarily focused on helping customers get residential mortgages.

•   Niche banks, which are banks that focus on a particular audience, such as medical professionals or the LGBTQ+ community.

•   Mutual savings banks, a kind of credit union that originally served low-income communities and focused on providing mortgages.

•   Community Development Financial Institution (CDFI) banks. Many people may wonder what is a CDFI? These are financial institutions that aim to create economic opportunity for individuals and small businesses, quality affordable housing, and essential community services.

•   Online banks, also known as Internet banking, which provide services online rather than via bricks-and-mortar branches.

•   Neobanks, which are fintech businesses that operate in similar ways to an online bank. They may partner with FDIC member banks or other financial institutions to offer accounts and banking services through an app or online. The main difference between fintech vs. banks lies in how they offer services to customers, i.e. online-only or online and in-person at branches.

You may notice that some of the organizations mentioned above are defined as thrifts or credit unions. When comparing credit unions vs. banks, the main difference to note is how they operate. Credit unions operate on a membership-basis; there are usually specific requirements you need to meet to join. A credit union is member-owned while a bank is not. Both can offer deposit accounts and loans, though credit unions return profits back to members in the form of higher rates for savers and lower rates for borrowers.

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How Small Banks Differ From Large Banks

When looking at big banks vs. small banks, there are a number of things that set them apart beyond the scope of their assets. Understanding the main differences can help if you’re on the fence about whether to open an account at a large bank or bank locally instead.

Here are some of the most notable ways big banks and small banks differ.

Big Banks

Small Local Banks

Can offer a wide range of financial products and services, including deposit accounts, loans, credit cards, insurance, business banking, and wealth management May have a narrower range of products and services; may offer products and services that serve the local community or a specific population
Usually have a sizable ATM network, as well as numerous branch locations Typically have a smaller ATM network and fewer branches
May charge higher fees for ATMs and other services and offer lower interest rates on deposit accounts May charge fewer and/or lower fees and offer more competitive rates on deposit accounts and loans
Service is often standardized and designed to fit all customers Service may be more personalized
May use the latest technology, with an emphasis on mobile and online banking May be slower to pick up on and adopt the latest tech trends

Benefits of Locally Banking

Why bank local? Opening accounts at a smaller bricks-and-mortar bank or credit union has its advantages over choosing a larger bank or even an online bank in some instances.

Whether it makes sense for you to consider small local banks can depend on your needs and how you’re most comfortable when it comes to managing your money. To help you make your decision, here are some benefits of banking locally.

More Personal Connection With Customers

One of the main reasons why some people prefer small banks is the level of customer service. When you walk into a branch at a large bank with thousands of customers, the odds that a teller is going to know may be slim. If you bank locally, on the other hand, you may have a better chance of building a rapport with your bank and its employees. You’ll likely see the same people each time you visit. For some people, this connection and recognition can be a major advantage.

Bank Fees Are Often Lower at Smaller Institutions

Banking fees can take a bite out of your deposits. Some of the most common banking fees include monthly maintenance fees, overdraft fees, non-sufficient funds fees, and excess withdrawal fees for savings accounts. Switching from a large bank to a small bank could save you money if your new bank charges fewer fees.

Often Gives Back & Benefits the Local Community

Small banks can often be community-oriented, which is another benefit of banking locally. Some of the ways small banks can give back include donating money to local charities, funding initiatives to address issues like poverty, hunger, and homelessness, and encouraging employees to participate in the local community as volunteers. They may also offer financial literacy education and other programs to help their clients thrive.

Lower Employee Turnover

Employees may come and go at big banks, but at smaller banks, this may be a less common occurrence. Again, that’s a good thing for building positive relationships with tellers, loan officers, and other bank employees. If you need to get a mortgage, for example, working with a loan officer who knows you and your family and understands the finer points of your financial situation could make the process and possibly the approval easier.

Often Offer Many of the Same Services as Larger Banks

Just because a local bank is small doesn’t mean it’s lacking in terms of the products and services offered. For example, you can visit a local bank or credit union to open a checking account or savings account, apply for an auto loan, or even get a mortgage. Niche banks can offer more specialized services. For example, they may focus exclusively on making loans to local business owners or offer products geared to underserved communities.

Convenience of Being Close to Home

One basic but very valuable benefit of banking locally is proximity. If you’ve got a local bank in your neighborhood, then popping in to make a deposit or conduct other business is likely to be very convenient. And many small banks offer mobile banking access so you don’t have to leave home to manage your accounts.

Drawbacks of Banking Locally

While opting for a small bank has its advantages, there can be some potential downsides to consider. These may be deal-breakers for some people; it depends on how you like to manage your money. Here are some of the main drawbacks to consider with banking locally.

Much More Limited Number of Services Than Larger Banks

As mentioned, local banks may deliver the basics, but you could miss out on some of the other services that large banks typically offer. If you bank locally and need wealth management services or a small business loan, for example, you may need to look elsewhere.

Often Limited to Your State

Many small banks do business in just one state. That can be limiting if you need to access funds while you’re away from home. It may also make opening and managing accounts more difficult if your life takes you across state lines on a regular basis. Access may become an issue.

Limited Number of Branches Per State

In addition to only operating in one state, it’s possible that a local bank may have just a handful of branches. That may be fine if you live in a smaller town and rarely venture far from home. But if you’re traveling to the other side of the state and need to withdraw cash, you may need to use another bank’s ATM, which could wind up triggering a fee.

Limited Technology, Including Fewer ATMs

Smaller banks may have smaller ATM networks than larger banks, which could add a wrinkle if you need to withdraw cash on the go. And smaller banks may also lag behind larger behinds in terms of the features included with online and mobile banking. There are pros and cons to online banking, of course, but many people are finding it helps them take care of routine tasks quickly and easily.

Lack of Large Funds Limits Local Banks to Small Businesses

Small and large banks rely on deposits from customers to fund loans to other customers, including small businesses. When a local bank has fewer assets and thus less money on deposit to lend, it can be harder for small businesses to qualify for a loan.

Less Available Banking Hours

While big banks may offer 24/7 customer service, you’re less likely to have that benefit at a smaller bank. That could be a problem if you need to get in touch with customer service after normal business hours or on the weekend.

Tips for Choosing a Bank

There are a number of things to consider when picking a bank to make sure you find the right fit. If you’re hunting for a new bank, here are some of the most important questions to ask:

•   What kind of banking products and services do I need? And what kind of banking products and services are offered?

•   Do I feel comfortable and safe banking online-only, or will I need branch banking services from time to time?

•   How much can I expect to pay in fees for an account?

•   What kind of interest rates do deposit accounts earn?

•   Is there a minimum deposit requirement or a minimum balance requirement?

•   How large is the ATM network? Are there any fee refunds for using out-of-network or foreign ATMs?

•   When is customer support available and how can I reach them?

•   Are online and mobile banking access available?

•   Will a teller or bank officer be available if I need to consult with someone, person to person?

•   Does the bank support the community in any way?

Whether you’re considering a big bank or a small bank, check to see if it’s FDIC-insured. FDIC (or Federal Deposit Insurance Corporation) insurance covers deposits up to $250,000 per depositor, per account type, per bank in the rare event of a bank failure.

Banking With SoFi

Switching to a new bank can seem a little daunting, but it can be worthwhile if you’re not 100% thrilled with your current banking situation. Choosing a small bank over a large bank could be a good fit if you want banking services with a personal feel. If you crave more product offerings or the latest tech bells and whistles, however, a large bank could be a better fit. It’s all about figuring out what matters most to you and understanding what different financial institutions offer. With that knowledge, you can find the right fit.

Banking online is a great alternative if you don’t necessarily need bricks-and-mortar branches. Online banks, like SoFi, can offer some rewarding options. For instance, when you open a high yield bank account at SoFi with direct deposit, you won’t pay any of the usual fees, plus you’ll earn a super competitive APY.

Better banking is here with up to 3.25% APY on SoFi Checking and Savings.


How is a small bank different from a large bank?

Small banks can differ from large banks in a number of ways, including assets, products and services offered, geographic footprint, and cost. The most common metric used to measure bank size involves assessing its assets according to FDIC guidelines.

Should I switch to a local bank?

Switching to a local bank could make sense if you want to bank close to home and enjoy having a personal relationship with the bank’s staff. When comparing local banks, consider the types of accounts and services offered, the fees you’ll pay, how you’ll be able to access your money, and customer support.

What is an advantage of local community banks?

Local community banks can offer numerous advantages, starting with personalized service. A local bank may be less costly than a larger bank and have lower employee turnover. You can also bank closer to home and may find that the financial institution offers special products and programs tailored to the local community.

Photo credit: iStock/Drazen_

SoFi members with direct deposit can earn up to 3.25% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 2.50% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 11/3/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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