There is a movement afoot that encourages people to move their money from the big six banks into smaller community banks. I fully understand the emotion behind this desire to punish the banks for business as usual, but I’m not 100% convinced that it’s the best idea, or that it will make a big difference.

The Idea Behind Move Your Money
The idea behind move your money is that the big banks don’t care about the people. They don’t lend to small businesses. They don’t care about the community. Smaller, community banks are supposed to be more responsible and personal because you know the bankers personally. The organizers believe that a mass movement to smaller banks will force the big banks to be more responsible.

Advantages of Moving Your Money
Moving your money to a small bank certainly does have a few advantages:

Taking control. The biggest advantage to moving your money is the simple psychological boost you’ll receive from sticking it to a big bank. You’ll feel like you’re taking some sort of control over the situation.

Supporting the local community. If you find a nearby bank, you may in fact find that the bank is a part of the community, that it supports local organizations and lends to small businesses in your community.

More personalized service. If you have choose a bank with just a few branches, you may indeed receive more personalized service when you have a problem.

Disadvantages of Moving Your Money
There are also a few disadvantages of moving your money that you should seriously consider:

Lack of convenience. How many ATMs does the local bank have? Do they have ATMs where you work or live? Can you get money out without a fee? If you’re going to have to use a big bank’s ATM to get money from your small bank’s account when you travel a small distance from home, how big a blow are you striking?

Small banks took similar risks. While it’s true that the big banks were bailed out for excessive leverage, smaller banks are failing in much higher numbers because they also over-leveraged and made risky loans. Big or small, a bank is still a for-profit business and small banks eventually do everything the big guys do.

Switching banks won’t make a huge difference. Even if you use a small bank for your personal banking, tons of people flocking to small banks just makes the banks targets for takeovers. The big banks also have their fingers in a lot of pies. Sure, you can move your checking account or savings account, but do you still have big bank credit cards? Is your mortgage serviced by a big bank? Does your employer process your payroll through a big bank?

Higher risk of bank failure. Most of the bank failures have been community banks. And although the money is FDIC-insured, you may see a slight delay in accessing some of your money if the bank is seized. Before placing your money in a small bank, verify its ratings at Bankrate.com. If your bank isn’t safe or you have more than $100,000 in it, you should switch some of your money.

Can You Find a Small Bank?
If you live in a small town and do most of your transactions in that community, then you may be able to find a community bank where you can do business. If you live in a medium to large-sized city, you may not be able to find a community bank. The community banks in Los Angeles were among the first to fail in the mortgage crisis. The Move Your Money site currently lists one bank in Los Angeles as being a community bank. It’s not a personal bank – it’s a business bank and has offices in many cities in three different states.

The decision about where to bank is a personal one. Only you can decide if switching to a smaller bank is right for you and your financial habits. If you live in a big city, it may not even be possible to switch to a small bank, but you could consider a credit union.

There is a movement afoot that encourages people to move their money http://moveyourmoney.info/ from the big six banks into smaller community banks. I fully understand the emotion behind this desire to punish the banks for business as usual, but I’m not 100% convinced that it’s the best idea, or that it will make a big difference.

The Idea Behind Move Your Money
The idea behind move your money is that the big banks don’t care about the people. They don’t lend to small businesses. They don’t care about the community. Smaller, community banks are supposed to be more responsible and personal because you know the bankers personally. The organizers believe that a mass movement to smaller banks will force the big banks to be more responsible.

Advantages of Moving Your Money
Moving your money to a small bank certainly does have a few advantages:

Taking control. The biggest advantage to moving your money is the simple psychological boost you’ll receive from sticking it to a big bank. You’ll feel like you’re taking some sort of control over the situation.

Supporting the local community. If you find a nearby bank, you may in fact find that the bank is a part of the community, that it supports local organizations and lends to small businesses in your community.

More personalized service. If you have choose a bank with just a few branches, you may indeed receive more personalized service when you have a problem.

Disadvantages of Moving Your Money
There are also a few disadvantages of moving your money that you should seriously consider:

Lack of convenience. How many ATMs does the local bank have? Do they have ATMs where you work or live? Can you get money out without a fee? If you’re going to have to use a big bank’s ATM to get money from your small bank’s account when you travel a small distance from home, how big a blow are you striking?

Small banks took similar risks. While it’s true that the big banks were bailed out for excessive leverage, smaller banks are failing in much higher numbers because they also over-leveraged and made risky loans. Big or small, a bank is still a for-profit business and small banks eventually do everything the big guys do.

Switching banks won’t make a huge difference. Even if you use a small bank for your personal banking, tons of people flocking to small banks just makes the banks targets for takeovers. The big banks also have their fingers in a lot of pies. Sure, you can move your checking account or savings account, but do you still have big bank credit cards? Is your mortgage serviced by a big bank? Does your employer process your payroll through a big bank?

Higher risk of bank failure. Most of the bank failures have been community banks. And although the money is FDIC-insured, you may see a slight delay in accessing some of your money if the bank is seized. Before placing your money in a small bank, verify its ratings http://www.bankrate.com/rates/safe-sound/ssPromo.aspx at Bankrate.com. If your bank isn’t safe or you have more than $100,000 in it, you should switch some of your money. http://www.soundmoneymatters.com/pull-money-bank/

Can You Find a Small Bank?
If you live in a small town and do most of your transactions in that community, then you may be able to find a community bank where you can do business. If you live in a medium to large-sized city, you may not be able to find a community bank. The community banks in Los Angeles were among the first to fail in the mortgage crisis. The Move Your Money site currently lists one bank in Los Angeles as being a community bank. It’s not a personal bank – it’s a business bank and has offices in many cities in three different states.

The decision about where to bank is a personal one. Only you can decide if switching to a smaller bank is right for you and your financial habits. If you live in a big city, it may not even be possible to switch to a small bank, but you could consider a credit union.

Comments

7 Responses to “Should You Move Your Money to a Small Bank?”

  1. Bucksome on February 10th, 2010 8:49 pm

    I plan to move to one of the local credit unions soon. I just have to get myself motivated to go to the trouble.

  2. Aryn on February 11th, 2010 2:56 pm

    That’s the challenge – you have to deal with the banks to move your money.

  3. Toby on February 17th, 2010 9:44 am

    Full disclosure: I work for a credit union. However, one of the best kept secrets of credit unions is that nearly all of us share an ATM network across the country – called the CO-OP Network. This gives credit union members access to more than 28,000 surcharge free ATMs. That’s more than Citibank, Chase or Wells Fargo. So don’t let the perceived lack of ATM access be the deciding factor when it comes to switching to a credit union.

  4. Aryn on February 17th, 2010 10:31 am

    Thanks for the tip, Toby. In my mind, credit unions are different from small community banks, and therefore don’t have the same advantages and disadvantages. Perhaps I should do a post on credit unions!

  5. Toby on February 17th, 2010 11:03 am

    Definitely do one on credit unions! A lot of people don’t understand the differences between banks (shareholder owned, for profit) and credit unions (member-owned, not-for-profit). Thanks for the follow-up!

  6. Tom on February 21st, 2010 5:47 am

    After my experience in the last couple of weeks with BofA and trying to find someone who isn’t an untrained representative at a call centers in another state. I look forward to moving my money to a small town bank.

  7. Move your money on April 8th, 2010 5:54 pm

    It seems that all move your money type campaigns are not created equal. Take The Robin Hood Tax for example. Taxing any business usually just transfers cost to consumers. Not to mention the inefficiency that occurs when it comes time to appoint tax revenue. It is becoming frustrating that popular movements against the banking system are having to operate under such imperfect themes in order to be understood or supported. The real cause of our banking woes is fiat currency and banks being the gatekeepers of our money-as-debt economic structure. Money should be based on a commodity, if not gold and silver, then energy, food, water, etc. Loans should not be a vehicle for banks to skim off the top of economic activity, they should be a vehicle for people with real capital to encourage technological and scientific improvements in a free market environment. Ron Paul is the only honest politician with the guts to continually address the fiat money issue. He needs more support among his own. Too bad there’s no courage in politics.

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