Consider plastic from credit unions
Choice often overlooked when bank ads and their many perks steal focus
When you’re frequently bombarded with ads for credit cards at big banks, it’s easy to overlook credit cards at a local credit union. These not-for-profit organizations typically require membership based on location or affiliation with an employer, a family member or an organization. Major credit card issuers generally don’t have these requirements.
But while the rewards and perks are often flashier on bankissued credit cards, credit union credit cards may offer generous incentives of their own or other forms of value. Plus, a credit union provides many of the same services that banks do, but the profits are returned to members in the form of reduced fees, lower interest rates and more.
Here are some ways in which credit union credit cards can eclipse glitzy offers from banks.
Lower fees
It’s not uncommon to find credit cards at a credit union with lower annual fees, balance transfer fees, cash advance fees, late fees and so forth. In fact, the average late fee is about $10 cheaper at a credit union than at a bank, according to a Membership Benefits report by the Credit Union National Association. The types of fees assessed vary by credit union.
Navy Federal Credit Union in Virginia, for instance, has a military focus and fees to match members’ lifestyles.
“We know that many of our military members are stationed abroad so having no foreign transaction fees on any of our credit cards, we think, is a really fantastic way that we are able to serve our community,” said Justin Zeidman, head of credit card products at the credit union.
Fees are an important factor to consider when choosing a credit card at any institution.
Lower interest rates
If you carry a balance on a credit card over a long period, you can potentially save more money on interest with a credit card from a credit union than one from a bank. That’s because, unlike at banks, interest rates at federally chartered credit unions are capped. Federal law caps the interest rate on loans and credit cards at 15 percent. However, the National Credit Union Administration Board temporarily raised it to 18 percent and recently voted to maintain this rate through March 10, 2023.
As of March 2021, the national average interest rate for a credit card from a credit union is 10.97 percent compared with 12.55 percent at banks, according to the NCUA.
Potentially healthy rewards
Some credit union credit cards compete with the sign-up bonuses or ongoing rewards rates found at big banks. It’s one of the ways these not-for-profit institutions return value to members.
For Keenan Kimbrough, a 27year-old resident of Pennsylvania, the rewards and low-interest rates were worth making the switch from a bank-issued credit card to a credit union card. His credit union card gets a lower interest rate of 12 percent compared with the 22 percent of the old card and the credit union card earns elevated rewards in common spending categories.
When redeeming rewards, “I can get $40 or $50” in cash back, Kimbrough said. “It was a good move.”
More flexible options
When you have less-than-ideal credit and don’t have enough money for a security deposit on a secured credit card, a credit union may provide alternatives to build credit. For instance, Usalliance Financial, a credit union based in New York, is one of many credit unions that offers a credit builder loan as an alternative for members who can’t pay a minimum deposit upfront to qualify for a secured credit card.
“Over half, around 53 percent, of members are at credit unions that offer credit builder loans that help people establish credit,” said Jordan van Rijn, senior economist for the Credit Union National Association.
With this type of loan, the amount borrowed is held in a bank account while you make small incremental payments over the term of the loan. At Usalliance Financial, the lowest payment with a credit builder loan can be around $4 2 a month compared with a minimum upfront cost of $250 for a secured credit card.
At the end of the loan, the funds are returned to you and can be applied toward a secured credit card deposit to continue establishing credit.