Small banks have a lot to offer to their customers and communities; there's little risk and lots of service

Thanks the FDIC local banks are just as safe as larger ones.
(iStockphoto,WSJ Photo Illustration)

Remember Banking 101 from "It's a Wonderful Life"? "During the first bank run, George was able to convince people not to pull all of their money out and instead take out only what they needed in the short term so the bank could stay afloat," Bourree Lam retells for The Atlantic. "Instead of George Bailey, Americans have the Federal Deposit Insurance Corp., which was created to insure bank deposits precisely so people wouldn't fear losing everything and pull cash out of the financial system in a panic, triggering bank failures."

"In the past few weeks, many small bank-account holders have gotten jitters: The surprise collapse of Silicon Valley Bank and Signature Bank has sent customers scrambling to larger competitors," reports Martha C. White of The Wall Street Journal. "Thinking of joining the stampede? Experts say now may be the time to consider what small banks offer. Thanks to FDIC insurance, they are just as safe as larger competitors. And right now, they're competing harder than ever for your dollars—many are offering deals for savers that leave their big-bank rivals in the dust."

It may be natural to leave what feels financially risky. "Depositors appear to be fleeing small banks because they fear problems in the banking sector could spread beyond the tiny number of troubled banks that have made headlines so far," White writes. "While many small and regional banks have seen their stock prices take a hit, the problems don't appear contagious." Michael Finke, professor of wealth management at the American College of Financial Services, told White, "A lot of the flight to capital to large banks is driven by emotion and not by true risk."

When offerings and protections are combined, reconsidering your small bank could yield good things. "Small banks tend to shine when it comes to being able to deliver personal, caring customer service and commitment to their local neighborhoods," White adds. "Just how much of your savings will be covered? FDIC insurance protects savings and checking account deposits up to $250,000—an amount much higher than most Americans keep as cash savings. Joint accounts, say between you and your spouse, are covered for up to $500,000. And if you have to protect still more than that, there are other simple strategies you can use to guarantee even larger sums." Finke told White, "The FDIC is going to protect you."