Drawbacks of Using Small Banks and Credit Unions
Small Size Isn't Always Indicative of Great Service
By Jennifer Roland
Many financial experts suggest moving money from the larger banks into smaller, locally owned banks and credit unions. But, these smaller institutions sometimes offer fewer services and are less convenient than their larger counterparts.
Fewer Locations
Large banks have branches everywhere, typically multiple branches in even small cities. A local financial institution may not be able to afford to put even one branch in every city in its service area.
To help alleviate the pressure to build branches, some credit unions have banded together to serve each other's members through shared branching. A member can call his or her credit union and ask to find a nearby location to do in-person transactions.
Restricted Access
This drawback is exclusive to credit unions. Many credit unions have been granted what are called community charters, which allow people who live or work in the service area to join without restriction. But, many are only open to people who work in a certain field or who have attended a particular school.
Limited Services
One of the biggest drawbacks of using a smaller financial institution is the lack of services that large bank customers have become accustomed to. Small banks and credit unions don't always offer all types of savings, checking, or loan accounts, and many do not offer business accounts.
Oregon resident Carol White, author of Live Your Road Trip Dream and a credit union member since the 1970s, cites lack of merchant accounts as the only drawback to her credit union. Her Visa processor handles that service for her.
Financial planner Rebecca Schreiber, of Solid Ground Financial Planning, finds that many of the credit unions in her area do not offer a rich array of mortgage products. Some of her clients have had good results with credit unions, but others have been quoted higher fees and interest rates than at national mortgage banks and have been required to have a down payment as high as 25%. Schreiber said, "expecting homebuyers to come up with a 20-25% down payment in a major metropolitan area is unreasonable" in the current economic climate.
And one anonymous credit union member is unable to withdraw more than $20 in cash. "It has to be given to me in the form of a Cashiers Check," he said, "which, for me, defeats the whole purpose."
Even given these drawbacks, a small bank or credit union might be the right choice. Read about the good points of using a credit union to see how a small financial institution might benefit you. Before choosing a financial institution, compare the products offered, the rates and fees, the locations, and the hours.