Small banks vs. big banks: Where should you put your money?

After the collapse of Silicon Valley Bank, big banks have seen an influx of deposits. But bigger isn't always better.

Illustration of a bank
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On the heels of Silicon Valley Bank's collapse, which marked the country's biggest bank failure since the 2008 financial crisis, depositors may have started second-guessing where they bank. In fact, Bloomberg reports that as the banking turmoil has continued to unfold, some of the biggest banks have seen an influx of deposits. JPMorgan Chase & Co. "received billions of dollars in recent days, and Bank of America Corp., Citigroup Inc., and Wells Fargo & Co. are also seeing higher-than-usual volume." Similarly, Fortune reported that Bank of America "brought in more than $15 billion in deposits as SVB sunk," which reportedly "came from fearful customers moving their money."

Why this dash to the big banks? Well, as Michael Imerman, an assistant professor at the University of California Irvine's business school, told Bloomberg, it seems that the "top six banks in the U.S. are and have been too big to fail," which leaves consumers believing that "it's safer to go with a name with higher degree of certainty."

But is banking big really better? As it turns out, there are benefits and drawbacks to both big banks and small banks. As MyBank Tracker contends, "when it comes to big banks vs. small banks the winner isn't always clear."

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Big banks vs. small banks

Perhaps the largest difference between small banks and big banks is the range of financial products and services they can offer. Big banks are generally capable of offering a larger variety compared to smaller, local banks, which may tailor their offerings to the population they serve. This range also extends to ATM networks and branch locations; you'll generally find more sprawling ATM networks and more branch locations with a big bank as compared to a small bank.

However, small banks can win out when it comes to fees and interest rates, as personal finance company SoFi notes that small banks "may charge fewer and/or lower fees and offer more competitive rates on deposit accounts and loans." Service can be more personalized at smaller banks than their behemoth counterparts. But when it comes to technology, it's likely that big banks are out ahead, with a great attention to mobile and online banking experiences.

What about safety?

When it comes to safety, there's no discernible difference between small banks and big banks. "As with bigger institutions, local banks are safe banking options as long as they're federally insured," Insider says.

When a bank is insured by the Federal Deposit Insurance Corporation (FDIC), funds deposited in an account are insured up to $250,000 in individual accounts and $500,000 in joint accounts. If a bank were to collapse, as happened with SVB, your funds would get transferred to another federally insured bank or you would receive a check for the amount.

To find out if a bank is federally insured, you can look it up online using the BankFind Suite tool, or you can call your bank, the FDIC, or the National Credit Union Administration (NCUA) if it's a credit union. Also look for signage at branch offices and markings in materials, for example in the rate comparison table below, that will identify the institution as an FDIC or NCUA member.

When you apply via links on our site, we may earn an affiliate commission.

What are the benefits and drawbacks of banking locally?

To truly decide whether big banks vs. small banks win out for you, it helps to assess the pros and cons. Here's a look at the advantages and disadvantages that small, local banks can offer:

Pros

Cons

  • Often lower fees
  • More personalized service
  • Convenience of local proximity
  • Greater willingness to negotiate and work with customers
  • More community-oriented
  • Generally fewer products and services than big banks
  • Often geographically limited in reach
  • Fewer branches and ATMs
  • Less robust technology
  • More limited customer service

What are the benefits and drawbacks of using a big bank?

Meanwhile, here are the pros and cons of big banks to note:

Pros

Cons

  • Wider range of products and services
  • Usually more ATMs and branch locations
  • Often better, more up-to-date technology
  • Greater ease banking abroad
  • More around-the-clock customer support
  • May charge more and higher fees
  • Generally offer lower interest rates
  • Usually a more standardized customer approach
  • Less community-focused
  • Potentially less flexible on requirements, and longer application processing

Are there other banking options to consider?

Big and small banks aren't the only types of institutions where you can deposit your money. Credit unions are another option. These not-for-profit institutions are created and owned by their customers, who are called members.

While credit unions tend to offer fewer products and services, as well as fewer physical branches and ATMs, members see better rates and fewer fees. Credit unions also may offer more flexibility in requirements for loans.

Credit unions are known for their community-focused approach and more personal customer service, though depositors "shouldn't assume that you'll get more personal service at a small bank, or less personal service at a big bank," Investopedia says.

How should you choose where to bank?

Your choice of a bank should ultimately be based on "the compatibility of its services and features with your banking needs," Investopedia says.

Finding a bank that fits the bill can take some shopping around. As you look, you'll want to take into consideration if a bank's services and product offerings meet your needs and what rates and fees a bank charges. Also think about whether you'll want to go to brick-and-mortar branches or if you're comfortable doing everything online, which also raises the question of how technologically-friendly a bank is. Look at questions of accessibility: Are branches and ATMs conveniently located? Is customer support readily available and through what methods?

And last but certainly not least, make sure that any institution you're considering is federally insured — either FDIC-insured if it's a bank, or NCUA-insured if it's a credit union.

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week.

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