When you deposit money at the bank, what does the bank do with it? Where does it go? That all depends on where you choose to keep your money.
Banking 101
All banks operate (and make money) under the same basic principle—they accept deposits, then put those deposits back into the economy in the form of loans, which in turn earn the bank money in the form of interest.
Personal loans are tailored to major life events like purchasing a home, buying a car, consolidating debt or covering the costs of major life events, such as relocating. Business loans, including Small Business Administration (SBA) loans, can help companies do anything from launch through growth and expansion.
As Nevada State Bank Executive Vice President Craig Kirkland says, “We’re in the business of helping people make their dreams come true,” which is why it’s never been more important to consider the type of bank you want to be there for you during life’s big moments.
What Type of Bank Will Best Match Your Needs?
“The larger the bank and the geographic area it serves, the more spread out its investments are going to be and the lower the percentage of funds that stay directly in the community they come from,” says Nevada Bankers Association (NBA) President Phyllis Gurgevich. “The smaller the geographic region, the closer to the community those dollars are lent back out in the form of loans and small business development.”
The numbers don’t lie: community banks represent 15 percent of the industry’s total loans, but 30 percent of its commercial real estate loans, 36 percent of small business loans, and 70 percent of agricultural loans. (1)
Gurgevich points out that while every bank plays an important role, “The local banks have a much higher percentage of funds being expended into the community.”
#BankLocal
The peace of mind of knowing that your bank deposits are supporting your community isn’t the only benefit of choosing a regional or community bank.
“As a local bank, we’re able to provide more personalized service,” says Nevada State Bank Executive Vice President Rick Thomas, who serves on the NBA board. “Our bankers become familiar with you and your needs, and we’re able to offer more flexible lending options.”
“There’s value in knowledge of the community,” says Gurgevich. “A local bank is going to have a more intimate knowledge of their local market and be able to make better business decisions when they’re working with small businesses.”
What About Online-Only Banks?
As banking continues to evolve, there are more options than ever, including online-only banks and even non-bank entities.
The advantage of working with a bank, whether in person or online, is that as long as the bank is FDIC-insured, your money is protected for up to $250,000 per depositor per deposit category, often increasing coverage beyond the $250,000. Depositors can use the FDIC Electronic Deposit Insurance Estimator (EDIE) tool (https://edie.fdic.gov/calculator.html) to understand their coverage.
What’s less certain with online-only banks is that your money is being reinvested in the community in which you live. Working with a local bank provides a greater level of confidence that your deposits are being fed back into the community in the form of loans.
And when considering an online-only bank, it’s important to remember what can get lost is the ability to visit a branch and sit down with a banker to discuss your needs and your unique situation.
What If I Keep My Money in a Payment App?
One financial service area remains unregulated and particularly murky: payment apps.
Rohit Chopra, director of the Consumer Financial Protection Bureau, recently warned that payment services like PayPal, Venmo, Cash App and Apple Pay “are increasingly used as substitutes for a traditional bank…but lack the same protections to ensure that funds are safe.” (2)
While some of these services offer deposit accounts that are FDIC-insured, often customers simply keep their funds in the services themselves, which aren’t insured. (3)
“When you’re letting your funds sit in a non-bank institution, it’s most often the case that those deposits aren’t insured,” says Gurgevich. “It’s a good question of where those funds are then deployed and who is benefitting on those deposits.
“I think we can say with certainty that those funds aren’t being deployed back into your hometown to a local business that’s going to employ people in your community and provide products and services that help grow your community.”
What’s Good for the Community, Is Good for Local Banks
The community support a local bank provides isn’t just financial.
“When it comes to a local bank, its success is tied to the community,” says Gurgevich. “The bank and the bankers have a business and personal interest in developing and contributing to the community.”
“We’re inseparable from our community,” says Thomas. “Whether we’re sponsoring local events, providing financial education, or donating to local nonprofits, we’re an active member of the community as a business and as a team.”
In 2022, more than 200 Nevada State Bank employees spent over 2,800 combined hours volunteering.
“Our team members are able to volunteer during business hours and at nonprofit organizations of their choice,” says Thomas. “We also coordinate volunteer opportunities for colleagues and family members.”
As Thomas says, “When it comes down to it, our slogan says it all: It Matters Who You Bank With.”
1. FDIC Community Banking Study December 2020
2. https://www.cnn.com/2023/06/02/investing/payment-apps-safety/index.html
3. https://www.cnbc.com/2022/04/11/how-to-use-peer-to-peer-payment-apps-like-venmo-cash-paypal-zelle.html