Big banks have fame and fortune on their side, but that wealth doesn’t often trickle down to their littlest customers. In fact, large banks typically offer the lowest rates around, according to a study from DepositAccounts.com, an online aggregator of deposit rates and other bank-product information. Small institutions with less than $1 billion in assets and medium-sized banks with between $1 billion and $25 billion in assets offer average rates on their checking and savings accounts and one-year and five-year certificates of deposit of 2.19 percent and 2.31 percent, respectively. The average rate for the same four products at large banks with more than $25 billion in assets is just 1.4 percent.
“With the large banks, there’s the idea that they’re too big to fail,” says consumer banking expert Ken Tumin of DepositAccounts.com. “They have less of a need to offer higher rates to attract deposits.”
Smaller banks, on the other hand, don’t have the same luxury — and consumers stand to reap the benefits. “To be able to attract depositors, small- and medium-sized banks have to compete, and the best way for them to compete is often to offer the higher deposit rates,” Tumin says.
Indeed, small banks are the biggest players when it comes to the highest rates. In fact, 16 of the 20 highest-yielding checking accounts and 13 of the 20 highest-yielding savings accounts in the nation come from small banks, according to the DepositAccounts.com study.
[See: Your Month-to-Month Guide to Savings.]
Even better, as the Federal Reserve has been raising rates, small banks have been quicker than their larger counterparts to pass those higher rates onto savers. And internet banks have been particularly generous, increasing rates substantially on their savings and checking accounts and CDs over the past few months, Tumin says.
That trend ought to continue, regardless of what the Fed does next. “The Fed may only raise rates one more time this year, but that doesn’t mean you’re not going to see continued competition among the top-yielding accounts,” says Greg McBride, chief financial analyst at Bankrate. “You will see that even in the absence of regular Fed rate movements.”
Small banks have more to offer than just a pretty payout. Operating on a smaller scale and typically focused on their local communities, they are able to offer customers a more personal touch and real relationship — one of their main selling points.
“Proof of that: You often hear large banks talk about themselves as a community bank, particularly as it relates to the consumer experience where you feel valued and you’re not just a number,” McBride says. “You don’t hear the small community banks saying that they operate like a megabank.”
Plus, banking close to home can help enrich your neighborhood. “The money you deposit in your community bank will be reinvested in ways that drive your local economy, such as in the form of loans to local residents who want to buy a home or to small-business owners who are looking to open shop on Main Street,” says Terry Jorde, senior executive vice president for national trade association the Independent Community Bankers of America, in an email.
Actually, you might prefer to go with a community bank when it comes time for you to seek a loan yourself. Carrying over their more personalized business model, when they assess whether to approve a loan application, they look at more than just your credit score and debt-to-income ratio. “Many community banks are willing to consider character, family history and discretionary spending in making loans,” Jorde says.
[Read: Is It Time to Change Banks?]
But going small might not be for everyone. One downside to keep in mind: While financial behemoths offer branch locations all around the world and 800-numbers you can call for help at all hours of the day, small banks can’t offer their high level of familiar customer service across the nation or around the clock. If you need to do any banking in person, you have to stay close to home. Even to call for assistance, you’d likely need to do so within the regular business hours of the brick-and-mortar bank.
Of course, technology may make this a nonissue. “For a lot of people and the way that they bank today, that’s neither here nor there,” McBride says. “A lot of people never go into a branch — they do all their banking via an app or from a desktop, and community banks are just as adept at that as the larger banks.”
Speaking of technology, that may be another area where small banks have a slight disadvantage. Many have adopted basic technological capabilities, so you should have no problem paying bills, monitoring your accounts and transferring funds using the bank’s website or app. You can probably even make mobile deposits. Just don’t expect a small bank to be a leader on the next big thing. “Because of their scale, it’s the larger banks that innovate and introduce the latest bells and whistles,” McBride says. “But in terms of the functionality … that’s something that’s not unique to the big banks.”
Not that you really have to choose between big and small. You might consider choosing one bank that offers the highest rate for your savings and another bank that doesn’t charge any fees for your checking account. “It’s not like picking a spouse where you have to settle on one,” McBride says. “You can have multiple banking relationships.”
[See: 11 Money Tips for Women.]
Whatever your banking needs, just be sure to look beyond the names of big stadiums when considering the right bank for you. You can find which accounts are offering the best rates in your area by searching DepositAccounts.com and Bankrate.
“If you’re sticking with your large bank for convenience sake, it could be costing you,” Tumin says. “Don’t overlook small banks and credit unions when you’re looking for the highest deposit rates.”
More from U.S. News
8 Easy Ways to Organize Your Financial Life
10 Ways to Protect Yourself From Online Fraud
15 Financial Steps to Take Your First Year After Graduation
Why a Small Bank Might Be Right for You originally appeared on usnews.com
