Big bank pros and cons

By Tom Tennant

A staggering 650,000 Americans opened accounts at credit unions in October, according to the Credit Union National Association (CUNA). Considering only 600,000 Americans opened credit union accounts in all of 2010, it's clear the recent outrage toward big banks has affected a significant change in the nation's financial landscape.

Anger toward large banks had been simmering since the financial crisis of 2008, but new fee announcements from Bank of America and others, combined with the grassroots Bank Transfer Day movement, has led droves of customers to flee the nation's major banks in recent weeks.

You may be among the customers wondering if it's time to cut ties with your big bank. But while the movement away from big banks may feel infectious, there are probably good reasons to leave your big bank and good reasons to stay. You should weigh those reasons against your situation before you decide what kind of bank you should belong to.

Here are four reasons to leave your big bank and four reasons to stay:

Reasons to leave your big bank

  • Credit unions and community banks are locally owned and operated. If you like to say that our country was built by small business, you'll find solace in the local ties credit unions and community banks nurture. With headquarters on Main Street, small banks have a strong interest in seeing their communities thrive.
  • Many small banks offer strong interest rates. Because of their non-profit nature, credit unions in particular are able to offers some of the best savings account interest rates available. Their mortgage rates are often low too, and they offer many other products with competitive rates as well.
  • Your money is just as safe with a small bank. See that FDIC or NCUA sticker? That means your small bank or credit union insures your deposits up to $250,000. Community banks and credit unions are governed by the same financial regulations as the big boys and typically provide the same protections to their customers.
  • Small banks offer a different banking experience. Many people find that small banks offer better customer service, and it's rare to find a small bank that will charge for visiting a teller. And while many were slower to adopt the online banking model than larger banks, most small banks now offer extensive online services.

Reasons to keep your big bank

  • On one level, big banks are the same as small banks. If you're considering switching only because you view big banks as money-grubbing corporate machines, understand that community banks and credit unions are technically after the exact same thing: your money. Banks, regardless of size, survive not only by investing what you deposit with them, but by charging you fees for their services.
  • Big banks offer more accessibility. If you like that your bank has branches in every city, note that you'll likely give this up with a small bank. Small banks and credit unions have far fewer branches than big banks, and frequently offer no ATM network outside their regional footprint.
  • There are exceptions to the insured rule. The National Credit Union Administration reports that about 97 percent of credit unions have insured member deposits, so do your due diligence before you sign up. You don't want to wind up a member of that reported 3 percent in the midst of a bank failure.
  • Some big-bank technology may be superior. Not all small banks and credit unions use the most up-to-date customer service technology. That can translates into increased wait times as branch employees track down paper files--such as your signature card--rather than viewing them in an online database. If you like quick answers to your money questions, then kick the tires of any small bank to find out how fast it moves.

While small banks clearly have new momentum in today's environment, it's important to remember that many big banks became big for a reason. Be sure to look carefully into your banking habits before you decide that a switch is right for you.