Personal finance is about more than just money. People make financial choices because of emotion, of course, but they also make decisions based on their principles. Some people are guided by their faith. But that’s not the only way a person’s conscience can guide him. Josh recently wrote with a question about finding a bank that better matches his personal philosophy:

I’ve been doing a lot of reading about the economic crisis, and about the big banks being bought out and changing hands. This got me thinking a lot about banking locally. 

I’ve been a Chase customer for 13 years or so, ever since college.  The things going on now in the banking industry are not just scary but, in a lot of ways, unethical.  When I read about the types of things these banks have been involved with other the years, it makes me want to take my business away from them.

I was wondering if you had any thoughts on big banks vs. local banks.  My wife and I have embarked on an “eating local quest” in an effort to save money, eat better, and support local farmers, and I wondered if banking local has a similar effect.

Josh hopes to stay true to his principles while also satisfying his need for quality banking products and services. What choices does he have? I can think of two options Josh should explore:

  • Community development banks are designed to serve residents and spur economic development in low- to moderate-income areas. An example near me is Portland’s Albina Community Bank. Nationally, ShoreBank has many locations. The Community Investing Center offers more information about community development banks, including an online database.
  • Credit unions and small local banks are another option. They generally offer excellent (sometimes personalized) service and policies that reflect the community. They can have surprisingly good financial products, too. Last month, for example, I wrote that the best checking account can usually be found at a local bank or credit union.

I was an account-holder with a major U.S. bank for eighteen years. I paid an $8 “service charge” every month, as well as many other fees. Worse, I had to put up with truly awful customer service. (The bank insisted, for example, that I was stuck with that $8/month fee, even though they had long since waived it on my wife’s account. They were also notorious for waiting to process loan payments; no matter how early I mailed them, they would show up a day “late”.) I hated the place, but I was afraid to change because I thought it would be difficult. It wasn’t.

Moving my money to a local credit union was one of the best financial decisions I ever made — and it saved me $96 a year!

Now that I’ve turned into a money geek, I keep my funds in different locations based on needs. My business funds are with a large national bank that seems sound. My immediate money is split between two local credit unions. And my long-term savings are in an online savings account.

What about you? Do you keep any of your money with a local bank? Why or why not? Did you have to sacrifice anything — service, convenience, interest rates — to do this? Or do you intentionally avoid small banks? Can you offer Josh any other advice as he searches for a bank that better matches his personal philosophy?

Update: Josh has responded to your comments. Thanks, everyone!

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