updated 10/10/2008 4:58:19 PM ET 2008-10-10T20:58:19

As consumer confidence in big banks larded with distressed mortgage assets weakens, smaller community banks and credit unions are trying to win the hearts and minds — and deposits — of consumers.

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It's like Madison Avenue meeting Main Street as these smaller banks advertise online, over the airwaves and in local papers offering "safety, security" and protection from the financial markets' steep downturn.

At a time of global financial disaster when major institutions have teetered — and sometimes collapsed — under the weight of billions in soured mortgage loans and related securities, the small-town, conservative banker who still knows his customers by name looks appealing. Maybe he missed the boat on the real estate lending gravy train, but now he's got less to worry about on his bank's balance sheets, the thinking goes.

And the new increase in limits on federal deposit insurance — to $250,000 per regular account from $100,000 — adds to smaller banks' allure as safe havens and gives them another edge to compete for deposits with the big national banks.

"Bank safety scratches where it itches for the consumer right now," said Greg McBride, senior financial analyst at Bankrate.com based in North Palm Beach, Fla.

To be sure, big banks also are reaching out for new depositors and are advertising new rates on certificates of deposit and special account packages.

And smaller institutions certainly aren't without financial challenges: Small banks have been especially hard hit by losses on heavy concentrations of construction and development loans — the fastest-growing category of troubled loans for U.S. banks. Most of the 13 federally-insured banks and thrifts that have failed so far this year are small institutions.

More bank failures are expected. The collapse of Washington Mutual Inc. late last month was the largest bank failure in U.S. history, but didn't cost the government anything because the thrift was immediately sold to JPMorganChase & Co. for $1.9 billion.

Yet the flurry of enticements by community banks and credit unions is striking, with advertised rates of between 3.5 percent and 4.3 percent for various certificates of deposit. By comparison, Bankrate.com reported Thursday that the annual percentage yield on six-month certificates of deposit was 2.13 percent in the week ended Wednesday, and yields were 2.56 percent on 1-year CDs.

Millennium Bank's Web site touts a "high carb" money-market account: "When it comes to your Money, more Bread is Good."

The Reston, Va.-based bank says its management decisions are made locally while offering attentive personal service to customers, and its ad asks if consumers "fear the slumping market?"

"We're seeing a level of anxiety among some of the customers" coming into community banks, said Steve Scurlock, executive vice president of the Independent Bankers Association of Texas.

Some of the Austin-based group's roughly 600 member banks are running full-page ads stressing that they've been around a long time, survived the Great Depression and have strong capital levels, Scurlock said.

They're telling people, "We're continuing to make loans. Come talk to us," he said.

Chevy Chase Bank, based in the Maryland suburbs outside Washington, is offering "safety and security" along with special interest rates on certificates of deposit. As with other banks, conditions like minimum balances apply to qualify for the highest rates.

"In today's volatile market, you may feel that you can't be sure about anything," newspaper ads for the bank sympathize, adding that both peace of mind and competitive rates on deposits are available there.

The National Association of Federal Credit Unions provided radio spots to its roughly 8,000 members describing them as "a safe place to save and borrow at reasonable rates."

Locally, credit unions "are advertising the safety issue," said the group's president, Fred Becker. He said credit unions are benefiting from the "flight to safety" away from the stock market.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 2.43%
$30K home equity loan FICO 5.80%
$75K home equity loan FICO 4.54%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.57%
13.57%
Cash Back Cards 17.91%
17.91%
Rewards Cards 17.15%
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Source: Bankrate.com