Pros And Cons Of Community Banks

A community bank is a locally-owned financial institution that serves customers primarily within its geographic area, typically with less than $10 billion in assets. Unlike large national banks that operate across multiple states, community banks focus on building personal relationships with customers and reinvesting deposits back into local communities.

According to the Federal Reserve, community banks have less than $10 billion in assets, while regional banks have $10 billion to $100 billion. As of the first quarter of 2025, there were 3,917 commercial banks in the United States insured by the FDIC, with thousands of these classified as community banks serving local markets nationwide.

What makes community banks different from big banks?

The fundamental difference between community banks and large national banks lies in their approach to customer service, decision-making and community investment.

Local ownership and decision-making

Community banks are typically owned and operated by people who live in the communities they serve. This means loan decisions are made locally by bankers who understand the local economy and customer circumstances, rather than by distant corporate committees using only credit scores and algorithms.

Community reinvestment focus

Unlike megabanks that often operate without a strong connection between where they gather deposits and where they make loans, community banks focus on reinvesting in the neighborhoods where their depositors live and work. This local reinvestment helps create jobs and supports small businesses in the area.

Relationship banking philosophy

Community banks prioritize getting to know their customers personally. Community bank officers may consider family history and discretionary spending in making loans, going beyond just credit scores to evaluate loan applications.

Advantages of community banks

• Personalized service and local expertise: Community bank employees often have long-standing relationships with customers and can provide more individualized attention. You’re likely to work with the same banker for years, who understands your financial goals and history.
• Lower fees and competitive rates: Community banks generally charge lower fees than large financial institutions. Research shows significant savings on common banking fees, particularly for overdrafts and nonsufficient funds charges. Many community banks also offer competitive rates on deposits and loans, especially for customers with existing relationships.
• Faster loan procesessing and approval: Community banks offer nimble decision-making on business loans because decisions are made locally. This often translates to faster approval times compared to large banks that often must route applications through centralized underwriting departments.
• Community investment and support: Community banks actively support local initiatives, charities and economic development projects. Your deposits directly contribute to local lending that helps neighbors buy homes and local businesses grow.
• Small business lending expertise: According to the Federal Reserve’s Small Business Credit Survey, community banks are the small business lender of choice, with 81% of community bank loan applicants satisfied with their experience. This significantly outperforms large banks at 68%, finance companies at 62% and online lenders at 48%.

Disadvantages of community banks

• Limited product offerings: While community banks offer core banking services like checking accounts, savings accounts, and CDs, they may not provide specialized products such as investment services, credit card options or business bank accounts.
• Fewer branches and ATM networks: Community banks typically have limited geographic footprints, making access challenging when traveling. However, many participate in ATM networks that provide fee-free access, and some reimburse out-of-network ATM fees.
• Potentially less advanced digital banking: Digital access varies significantly among banks, with larger institutions typically offering more advanced options compared to community banks. However, many community banks have invested heavily in digital platforms to compete with larger institutions.

When to choose a community bank vs. a big bank

How to find a community bank

Most communities have multiple community bank options.

First, look for banks that sponsor local events, support charities and participate in community development initiatives. Next, compare rates and fees. Even among community banks, fees and rates can vary. Compare checking account fees, savings account rates and loan terms.

If you need branch access, make sure to consider branch locations and hours relative to your daily routine.

You can find community banks in your area through the Independent Community Bankers of America (ICBA) website, which maintains a directory of member institutions.

Bottom line

Community banks offer a compelling alternative to large national institutions, particularly for customers who value personalized service, competitive fees and supporting local economic development. While they may have limitations in terms of geographic reach and specialized products, their strengths in relationship banking and community investment make them an attractive choice for many.

Ready to explore your options?