Should You Move Your Money to a Small Bank?

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 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.

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