Two years ago, when frustration with "too-big-to-fail" banks reached a fever pitch, liberal blogger Arianna Huffington launched the "Move Your Money" campaign — an effort to persuade Americans to transfer their money out of the bailed-out big banks that helped create the global financial meltdown, and into community banks and credit unions that played little, if any, role in damaging the economy.
Since the movement began, according to campaign statistics, roughly 10 million people nationwide have made the switch.
But should you do the same?
Before closing your account with PNC Bank — as you'll see below, it'll cost you — experts suggest you do your homework. Because when it comes to banking, one size doesn't fit all.
To help you understand more about community banks — as well as how they match up against their larger competitors — City Paper recently spoke with Jay Sukits, a professor of finance at the University of Pittsburgh, and Paul Golden, spokesperson for the Denver-based National Endowment for Financial Education. Here's what they, and some others, had to say.
"Ownership is a big difference people should know about," says Golden.
After all, it's one of the main reasons why many customers have been leaving big banks for small banks and credit unions. As Golden notes, big banks are owned by their investors. Their focus, therefore, is on their bottom line.
"They're basically out to make money," says Golden.
Credit unions, on the other hand, are owned by their members — and that's who the nonprofit institutions are beholden to. Many community banks, like Pittsburgh's Dollar Bank, are owned by their depositors.
"It's our members' money that we're loaning to our members," says Christine Chojnicki, president and CEO of Riverset Credit Union, which is open to individuals who live, work or attend school in Allegheny, Beaver and Butler counties. "We don't deal with shareholders."
Rates and fees
When it comes to finding the best rates, experts advise customers to shop around. Rates vary at every bank — big or small — so it's up to customers to find the best deal.
But on the whole, says Golden, "Smaller banks offer more flexibility in terms of interest rates." At small banks and credit unions, "You'll often see higher interest rates on savings accounts and lower rates on loans" compared to what you'll find at bigger banks.
"So you do see savings" at small banks, Golden says.
As for fees, big banks are notorious for them. Some, including PNC Bank, even charge customers a $25 fee to close an account. Many banks also have fees for checking accounts with low balances.
Community banks and credit unions charge fees as well, but not as many as larger institutions.
Sukits calls big banks "financial supermarkets." Community banks, on the other hand, he calls "boutiques."
"What [those nicknames] speak to is the number of products and services big banks can deliver as opposed to small community banks."
PNC Bank customers, for example, have access to a wide range of financial products. If a customer wasn't getting a good return on their savings account, says Sukits, they could easily transfer their money into stocks and bonds. "You can do that right there in the bank," he says. "That's the good thing about being inside big institutions."
Small banks and credit unions are generally limited to banking staples, like savings and checking accounts. But for many individuals and small businesses, Sukits says, that's more than enough to satisfy their needs.
"If I was a small business person," he says, "I would feel really comfortable going to First Commonwealth Bank." But if you're a larger company or an active investor with more complex financial needs, you might be better off with one of the big boys."
Here's where David clearly defeats Goliath. When it comes to customer service, experts say community banks and credit unions have a big advantage over their larger competitors. Which isn't all that surprising. After all, it's much easier to work closely with customers if you're a community bank with just a few thousand customers in a small region, as opposed to a big bank taking care of tens of millions of customers spread all across the country.
"A lot of people like credit unions and small banks because it's much more personalized," says Golden. "At big banks, you become just a number for them."
"The advantage of a small institution is really good customer service," adds Sukits. "You're going to be treated really well if you need a personal loan or a business loan."
Sukits says community banks are more willing to work out special deals with customers. For example, he says, one local bank he's aware of offers customers better rates on their existing savings or checking accounts if they take out a mortgage with the bank. "That's a nice little service," says Sukits. "You typically see those [deals] more from community banks."
No one likes paying surcharge fees every time they use an out-of-network ATM. But you're less likely to confront them if you bank at a larger institution.
For PNC Bank customers, for example, it's easy to find a PNC ATM. If they can't hit up one of the Pittsburgh-based bank's 2,400 branches, then customers can often find a PNC ATM in a local convenience store.
This used to be a huge disadvantage for small banks and credit unions. Because customers are unlikely to find their credit union's ATM at the gas station, those who bank at smaller institutions have historically had to confront surcharge fees at out-of-network ATMs.
Nowadays, however, the disadvantage isn't so great, as many community banks have teamed up to share ATM access with each other. The Freedom ATM Alliance, an alliance of roughly 30 local banks, including Allegheny Valley Bank, Dollar Bank, Fidelity Bank and First Commonwealth Bank, offers customers access to more than 700 ATMs in more than 50 counties.
"It equalizes the playing field," says Andrew Hasley, president and CEO of Allegheny Valley Bank.
Riverset Credit Union has its own alliance — with PNC Bank. Chojnicki says Riverset members can use any PNC ATM to complete transactions, even check deposits.
If you're worried that your money isn't going to be safe in a small bank or credit union, don't be. Just like the big banks, most personal holdings in community banks and credit unions are federally insured up $250,000. Either way, says Golden, "Your money is still protected."