Community banks: What they are, how they work, and whether you should use them

Community banks play a vital role in the U.S. financial system by providing personalized banking services and supporting local economic growth.

Unlike large national banks, these institutions focus on building strong relationships with their customers and reinvesting in the communities they serve.

But how do community banks work, and what sets them apart from major financial institutions? Are they a good choice for personal or business banking?

In this article, we’ll explore everything you need to know about community banks, including their benefits, drawbacks, and how to find the right one for your needs.

Keep reading to learn how community banks work!

What are community banks?

Community banks are locally operated financial institutions that primarily serve individuals, small businesses, and local organizations within a specific geographic area.

These banks are typically smaller than national banks and prioritize customer service and community reinvestment over large-scale corporate profits.

According to the Independent Community Bankers of America (ICBA), community banks provide nearly 60% of small business loans and more than 80% of agricultural loans in the United States.

Unlike big banks that focus on maximizing shareholder returns, community banks reinvest deposits back into the local economy, helping create jobs and support neighborhood growth.

How do community banks work?

Community banks operate similarly to traditional banks, offering standard financial products such as checking accounts, savings accounts, loans, and investment services.

However, their banking approach differs significantly from large institutions in the following ways:

• Relationship-Based Banking – Community banks prioritize long-term relationships with customers, often offering more flexible loan options based on personal circumstances rather than just credit scores.
• Local Decision-Making – Loan approvals and financial decisions are made by people who understand the local economy and the financial needs of residents and businesses.
• Community Reinvestment – Instead of funding global investments, community banks use deposits to support local businesses, homeownership, and community development projects.

For example, many small business owners prefer working with community banks because they offer personalized service and faster loan approvals compared to large national banks.

What services do community banks offer?

Despite being smaller than big banks, community banks offer a wide range of financial services, including:

• Checking and Savings Accounts – Secure options for managing personal or business finances with competitive interest rates.
• Personal and Business Loans – Financing solutions for home purchases, vehicle loans, and small business growth.
• Mortgages and Home Equity Loans – More flexible loan options for homebuyers, often with better terms than large banks.
• Online and Mobile Banking Services – Many community banks offer digital banking services, allowing customers to manage accounts remotely.
• Financial Education and Investment Services – Personalized advice and investment opportunities tailored to customers’ needs.

Some community banks also partner with local credit unions to provide additional financial resources to underserved populations.

Community banks vs. big banks: What’s the Difference?

The most significant differences between community banks and large national banks lie in their size, customer service approach, and economic impact.

While big banks have the advantage of nationwide ATMs, technology, and a wider range of services, community banks excel in customer service, flexibility, and local economic contributions.

Are regional banks the same as community banks?

Although regional banks and community banks share similarities, they are not the same.

• Regional banks serve multiple states or larger metropolitan areas, typically with assets between $10 billion and $100 billion.
• Community banks are smaller, focusing on a single city, town, or rural area, usually with assets below $10 billion.

For example, Truist Bank (formerly SunTrust and BB&T) is a regional bank, while First Community Bank operates as a smaller local financial institution.

Both types of banks offer personalized services compared to national banks, but community banks are more deeply rooted in their local economies.

Should you use a community bank?

Deciding whether to use a community bank depends on your financial needs and priorities. Here are the pros and cons:

Pros of using a community bank

• Personalized Customer Service – Bankers take the time to know their customers and offer tailored financial solutions.
• More Flexible Loan Approvals – Community banks may approve loans based on personal relationships and local economic conditions.
• Lower Fees – Many community banks charge fewer fees than large national banks.
• Investment in the Local Economy – Your deposits help fund local businesses, schools, and homeownership programs.

Cons of using a community bank

• Limited Access to ATMs and Branches – Community banks generally have fewer branches and ATMs compared to national banks.
• Fewer Digital Banking Features – Some smaller banks may not offer the same level of mobile banking or advanced online services.
• Fewer Financial Products – Large banks often provide a wider selection of investment and loan options.

If you prioritize personalized service, local investment, and a strong community presence, a community bank might be the best choice.

However, if you travel frequently or rely on advanced online banking tools, a larger bank may better meet your needs.

How to find the best community bank

If you decide to bank locally, follow these steps to choose the best community bank for your needs:

1. Check Local Listings – Use resources like the Independent Community Bankers of America (ICBA) website to find community banks near you.
2. Compare Fees and Services – Look for banks that offer low or no fees, competitive interest rates, and the services you need.
3. Read Customer Reviews – Check online reviews and testimonials to assess the bank’s reputation.
4. Visit the Bank – Speak with a banker in person to see if they offer the level of service and flexibility you’re looking for.
5. Consider Their Digital Offerings – If online and mobile banking services are important to you, choose a community bank with strong technology features.

Community banks provide a valuable alternative to large national banks by offering personalized service, local reinvestment, and flexible loan options.

While they may not have the extensive branch networks or high-tech digital tools of big banks, they make up for it with strong customer relationships and community-focused banking solutions.

If you value supporting local businesses, lower fees, and personalized financial advice, a community bank could be the perfect choice.

However, if you need broad ATM access, cutting-edge digital banking, or complex financial products, a big bank might be a better fit.

No matter what you decide, choosing the right bank is an essential step toward financial success. Explore your options, compare features, and find the banking solution that best meets your needs.

Looking for a reliable community bank? Start researching local options today and discover the benefits of banking with a trusted local institution!

Want a recommendation? Check out our guide explaining how regional banks work!