Talk money to me: why you should use local banks

Home Opinion Talk money to me: why you should use local banks
Talk money to me: why you should use local banks
Choose a local bank | Wikimedia
Choose a local bank | Wikimedia

If you choose to open a checking account with PNC National Bank just because it’s a big bank with a reputation, then you’re making a mistake.

Bankrate’s 2016 high-yield checking survey determined that the bank with the highest annual percentage yield (APY) on a rewards checking account with a balance up to $10,000 was Ouachita Independent Bank, a local Louisiana bank at 2.05 percent on balances up to $10,000. The credit union with the highest APY was Consumers Credit Union at 3.09 percent on balances up to $10,000, and 4.59 percent on balances up to $20,000. Both institutions offer their services nationwide. PNC National Bank’s interest rate on its Virtual Wallet Performance Select checking accounts is currently at 0.01 percent on balances of at least $2,000, and increases to 0.5 percent if you meet certain qualifications each month.

Furthermore, the average credit union’s interest rate for a five-year certificate of deposit was at 1.50 percent in September, but the average bank’s interest rate was at 1.21 percent, according to data compiled by the National Credit Union Administration.

If you want to grow your savings faster, then open a checking account with a credit union or a local bank.

The average credit union, and some local banks, have higher interest rates on deposits, lower interest rates for loans, and very small fees for credit cards, overdraft, and ATM charges. They also offer higher credit rewards and are known for quality customer service, even if their websites and mobile apps aren’t as streamlined as the big banks. The average big bank has lower interest rates on deposits, higher interest rates for loans, higher overdraft and ATM fees, and subpar customer service.

Okay, so credit unions and some local banks are clearly better options. But if you can’t decide between a local bank and a credit union, here’s a rundown of the basic differences between the two types of financial institutions.

Since the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act, most banks are insured by the Federal Deposit Insurance Corp. and most credit unions are insured by the NCUA up to $250,000. Both institutions are backed by the full faith and credit of the U.S. government, but the NCUA is an independent federal agency, while the FDIC is a government corporation. Regardless of which institution you choose, your funds are going to be pretty safe.

One big difference between banks and credit unions is that banks are for-profit, but credit unions are nonprofit. Credit unions are unique because their members are bound by some common bond, such as a one-time donation to a charity or allegiance to an organization. For example, only members of the U.S. Navy and their family members and roommates may join the Navy Federal Credit Union.

This also means you’re a part-owner of the credit union — you have a stake in the company, and you can participate in electing the board of directors. Credit unions are, by definition, built on community, which means by doing business with a credit union you are pouring back into that community, whether it is a local community or a national community that shares a common interest (like Navy Federal Credit Union). That’s a big deal if you’re serious about finding a financial institution that aligns with your values.

Values and preferences aside, the fact remains that those who open an account with a local bank or credit union are generally going to save and make more money than those who open an account with a national bank like PNC or JP Morgan Chase.

If you’d rather have a pretty, high-tech mobile app than a more manageable car loan, then choose a big bank. Big banks generally have large overhead costs, and they slough those costs onto consumers via fees. As a college student, you’re probably going to be buying a car and paying off student loans pretty soon. If you want to pay less on your home mortgage, negotiate a more reasonable car loan, and earn more on your savings, then do business with the smaller, local banks and credit unions. Your future self will thank you.

Ms. Patrick is a senior studying history and journalism.