Skip to main content
Chase logo, links to Chase home
Sign in

What is a community bank?

Time to read min

    Quick insights

    • Community banks offer personalized service and financial solutions, including deposit accounts and loans.
    • One hallmark of most community banks is an emphasis on personal engagement with local customers and the area itself.
    • Compared to national and global banks, community banks may be small and have other notable differences.

    Given its namesake, the definition of a community bank may not surprise you. However, you might enjoy learning how this type of financial institution works and compares to larger, corporate banks.

    Introduction to community banking

    A community bank is a financial institution that primarily serves its immediate area. These banks are found in many different places but not often in large cities. A community bank’s services are often provided with an understanding of the community’s unique circumstances. A bank may offer loans to small businesses and farms, for example, which can help stimulate a local economy.

    Community banks vs. large banks

    The differences between community and large banks can be summarized in several ways:

    • Size and scope: Large banks are often national or global operations that serve a wide customer base. By comparison, community banks are smaller and focus on serving towns or regions. There may not be as wide a range of standardized products and services as there is at large banks.
    • Decision-making: Community banks are run by professionals who aim to understand and connect with local needs. Large corporate banks centralize most decisions because they must be made for thousands or millions of customers.
    • Service approach: Community banks typically emphasize personalized, relationship-based financial services. In certain communities, a banker might know a customer's name, family and occupation before they walk into a branch. In contrast, large banks might serve other large corporations and international clients. Customer service may be a priority but generally differs from how community bankers work with their client base.

    Understanding the services offered by community banks

    There are various types of accounts and products offered by community banks, often including:

    Despite these common offerings, community banks are known to have limitations sometimes. For instance:

    • May not offer extensive investment banking or wealth management services
    • Typically lack the complex financial products available at larger banks, such as money market accounts
    • Might have fewer technological capabilities compared to large corporate banks
    • Fewer ATMs and branch locations
    • Limited ability to offer international banking services, such as foreign currency accounts or international wire transfers 

    Choosing a bank is generally easier when you understand all the services it offers.

    How does community banking work?

    The business model of community banks is often based on a few core components. Although local needs are prioritized, these are financial institutions at the end of the day. They aim to make money and comply with important banking regulations:

    Revenue

    • Interest income: This is earned primarily from the loans community banks provide, whether to individuals or small businesses.
    • Fees: These are often charged for account maintenance, overdrafts and other banking services.

    Community investment

    • Local lending: Community banks focus on lending to local businesses and residents, which supports economic growth within the area.
    • Community engagement: It’s common for a community bank to participate in local events and initiatives. The bank might regularly sponsor community activities.

    Regulatory compliance

    • Financial insurance: Most, but not all, banking institutions are insured by the Federal Deposit Insurance Corp (FDIC). FDIC deposit insurance protects bank customers in the event an FDIC insured banking institution fails. Traditional deposit accounts, like checking, savings and CDs are covered by FDIC deposit insurance at an FDIC-insured bank. FDIC insurance provides a bank’s customers a level of financial security.
    • Adherence to banking regulations: Community banks follow state and federal banking laws that regulate sound banking practices.
    • Community Reinvestment Act (CRA): A community bank complies with CRA requirements to meet the credit needs of the individuals it serves.

    In summary

    Personalized service is a common emphasis of the community bank. Community banks often provide essential banking services like deposit accounts and loans. By focusing on local services and lending, this type of financial institution helps community members in their financial lives while supporting local economic development.

    Find a checking account
    Find a savings account

    Topics:

    What to read next