Move Your Money to a Small Bank

I recently talked to a friend of mine who had been laid off a few months ago. She was distraught and, much to her embarrassment, had to ask for money to do her groceries. And even though she was unemployed, she was receiving sizable unemployment checks every two weeks. What happened?

What had happened was that my friend, looking for convenience, did all her banking with the same bank. Her checks arrived via direct deposit, her credit card was with the same institution and so was her mortgage.

Now, while my friend's unemployment checks may be sizable, they are still far less than the paychecks she used to earn. While there she receives enough money to live off day-by-day, she has fallen behind on her mortgage payments. This, in turn has affected her credit score, which had consequences for her platinum level credit card. The bank closed that one, and seeing that there was money to be had in her checking account, helped itself to it. All of it. Which left her high and dry with no money to pay for groceries, gas, utilities or anything else for the next ten days until she received her next check.

The first problem was of course that she did all her financial transactions at the same place. And while the consequences were of some embarrassment to her, I assure you that she no longer does. She not only moved her checking account to another bank, she moved it to a local credit union. Why? As it turns out, small banks and credit unions have been shown to be more responsive to their customers needs than those large banks are which have a branch or ATM on every street corner.

Those large banks may be convenient if you're looking for an ATM which won't charge you, but those same large banks are also the ones who have radically cut lending during the past 12 months (according to The Huffington Post 12/16/2009, the Big 4 have cut lending to businesses alone by $100 billion - yes, with a B). Those are the same four banks, Bank of America, Wells Fargo, Chase and Citigroup that were deemed too large to fail and have been bailed out by our federal government. They have received additional incentives since then, which were supposed to stimulate lending to small businesses and intended to create new jobs. My friend could have used one of those new jobs after being laid off.

A small bank or a credit union by design is not too large to fail. Yet it is here where we find less stringent qualifying standards for business loans, mortgages and other credit products and often smaller fees and more responsive customer service. To be able to make those loans though, small banks need to be capitalized. That means have money on deposit in people's checking and savings accounts. (Don't worry, even if the bank does happen to fail the money is insured up to FDIC/NCUA limits.) And if everyone were to move their money away from the big four, well they just might end up not being all that big any more after all and will eventually realize that banking at its core is still a service, customer-driven industry.

Another thing to remember: Many credit unions belong to a network where they share each other's ATM's and agree not to charge fee's for using another credit union's ATM. So you even get to keep your option of being able to withdraw your money on just about every street corner. And now you even have a better chance of the money still being there when you want access to it.