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Does ‘buy local’ apply to CDs?

By Sheyna Steiner ·
Tuesday, November 20, 2012
Posted: 3 pm ET

Everything is connected in the global economy, but recent years have seen a shift in thinking. Rather than buying groceries shipped from the other side of the world, some consumers seek to boost local economies by buying local.

Movements to support local businesses and local farmers have flourished, but one thing many people don't consider is local banking. Some banks and credit unions exist mainly for helping out their community and are called community development financial institutions, or CDFIs.

According to the website for the group CDFI Coalition, CDFIs help underserved areas by providing traditional banking services, and "microenterprise development loan funds provide small amounts of business capital to small scale entrepreneurs."

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Community development loan funds lend to build businesses, affordable housing and community facilities. Community development venture capital funds provide equity and management expertise to small, often minority-owned businesses that promise rapid growth. CDFIs rebuild local economies by increasing the ability of ambitious entrepreneurial people to act in their own economic self-interest.

Traditional banks and credit unions are required to meet the credit needs of low-income people in their areas. The requirement was written into the Community Reinvestment Act of 1977, and the Office of the Comptroller of the Currency maintains a database of ratings based on banks' performance evaluations.

Buyers of certificates of deposit interested in supporting banks that support their local communities through fair lending practices can start their search by checking out how well their bank scored on the most recent CRA compliance exam.

Buying CDs from a local community bank or credit union could have a more direct impact on your local economy than buying CDs from a national megabank. And at credit unions, consumers might find better CD rates because they're nonprofit institutions.

"It really depends what national bank reinvests in that community. (Buying a CD) locally, yes, you can expect that to help out economically. The dollars will be reinvested back into the community much faster than it would on a national scale," says Xavier Epps, founder of XNE Financial Advising in Woodbridge, Va.

While keeping banking local could help the local economy, not all community banks are wonderful and not all megabanks are terrible. Savers interested in sustainable business practices should evaluate the impact made by individual branches on the surrounding area.

Where do you do your banking? Do you prefer a big bank, small bank or credit union?

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November 20, 2012 at 7:26 pm

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