If you’re like me and are a member of a credit union or have an account with a smaller bank (think local or regional), you probably already know many of the benefits of such financial institutions. Among other things, these card issuers are known for lower card rates and the personal attention and customer service you might not get from large banks.
There’s no shortage of big banks out there that hire celebrities to sing the praises of flashy credit cards loaded with perks and features. The reality is that the top 10 largest issuers, such as Citibank and Capital One, account for more than 82.5% of all card spending according to the Nilson Report.
But what if you prefer banks that are smaller, more personal and less flashy (but still offer cards loaded with perks and features)? In that case, it’s time to look at other options if you’re considering applying for a new card.
The bottom line is that credit union and small bank cards don’t get the same press or buzz that cards from larger issuers do but, in many cases, they offer rewards or perks and rates that are similar or even better.
But, are small bank and credit union cards worth it, and what are the downsides, if any? More importantly, are such cards a good fit for you? I hope to help answer such questions in this article and financially empower you at the same time.
How do credit union credit cards work?
There are a lot of myths that seem to surround credit unions for many consumers and this also applies to credit union cards. While credit unions may seem different (than what you’re used to at a larger bank), the good news is that credit union cards work pretty much the same as any other credit card.
Credit card expert Jason Steele notes that “these cards work just like cards from any other card issuer.” Their look and feel is very similar to any other card. For example, you will typically get a Visa or Mastercard just like you would with any large bank card issuer.
Having said all of this, there are a few notable differences:
- Unlike banks, credit unions are non-profit organizations. As a result, according to Lynnette Khalfani-Cox, also known as The Money Coach®, credit unions are typically thought to be “more concerned about their client-members’ best interests.”
- Beverly Harzog, credit expert and podcast host of “Your Personal Economy,” explains that “since you also become a member of a credit union, you get to vote on policies.” One benefit is that this “creates a more personal experience than what you’d have with a big bank.”
Khalfani-Cox adds that once the credit union has covered all its basic costs, any profits are given back to members. This often results in lower card rates and fees.
However, credit union membership often comes with eligibility rules that could exclude you. Examples of membership requirements include you or a family member being in the military, living in a certain zip code, your affiliation with a current or former employer, etc.
The bottom line is that if you can’t become a member, you generally can’t apply for their card. However, one notable exception is PenFed credit union, which issues several popular cards that are available to any U.S. resident.
BONUS TIP!
Even though credit unions limit their membership, pretty much anyone can join one of the dozens of credit unions available nationwide by paying a small membership fee. The National Credit Union Administration offers a free online tool that allows you to quickly see your options.
Who should apply for credit union and small bank credit cards?
You might be wondering if you’re a good fit for a small bank or credit union card. While large bank cards do have advantages, such as offering competitive rewards, some consumers are more comfortable with a card from a smaller issuer for various reasons.
A couple of big advantages of smaller card issuers that attract applicants are:
- Great customer service that is often local – being able to go in person to a local branch, for example, if you have an issue or concern.
- Lower card rates and fees – this is particularly attractive to cardholders who carry a balance each month and/or cardholders who occasionally carry a balance.
Steele adds that smaller card companies are best suited for “anyone who is looking for the most competitive rates and fees, rather than co-brand relationships with major retailers and travel providers.”
BONUS TIP!
Already a credit union member and ready to apply for a new credit card? The easiest way to apply online is usually by logging into your existing account. If you’re not yet a member, many credit unions allow you to join while completing your online credit card application.
According to Steele, the application process is similar to any other bank or card issuer. You can also apply in-person at a local branch.
Advantages and potential drawbacks of credit union and small bank credit cards
Here’s a quick summary of the pros and cons of cards from small issuers:
Cons of small bank and credit union credit cards
- Limited rewards and benefits – Steele opines that larger card issuers can sometimes offer more competitive rewards, bonus offers and benefits, as well as partnerships with major brands.
- Limited membership availability – While there are a few exemptions, most credit unions restrict their membership. Even nationally known credit unions normally have limitations. For instance, you must have a military affiliation to join Navy Federal Credit Union, the largest credit union in the U.S.
Pros of small bank and credit union credit cards
- Nonprofit structure – Steele points out that “credit unions exist to benefit their members and can offer lower rates and fees than institutions that have a duty to maximize shareholder profits.”
- Lower rates and fees – Khalfani-Cox explains that by law, federal credit unions can’t charge an interest rate of more than 18% for any card – and that includes the default or penalty rate that gets imposed if you’re late making a payment. She adds that this is good news, especially considering how high credit card interest rates currently are. Simply put, lower credit union rates could help you spend significantly less on interest.
- Superior (often local) customer service – You get the benefit of more personalized customer service, easier access and, if this is your thing, the knowledge that you’re supporting a small organization rather than a Main Street giant.
Steele adds that smaller banks may also have “fewer costs and may be able to provide more personalized products and customer service.”
CardRatings’ top picks for the best credit union credit cards
There are a lot of credit union and small bank cards that you can choose from. However, the best cards generally offer the following benefits/terms:
- Ongoing purchase rates (not intro rates) as low as 15%.
- Introductory 0% purchase rates for at least 12 months and 0% balance transfer offers for at least 12 months with a transfer fee of 3% or less.
- The best reward cards offer at least 2% cash-back on all purchases and do not have an annual fee.
The no-annual-fee card_name, for example, offers unlimited 2% cash back on all eligible purchases, and it also offers new cardholders a $200 cash back welcome bonus once they spend $1,500 with the card within the first 90 days of opening an account. The card_name, also with no annual fee, is also notable thanks to its 0% intro APR offer on balance transfers balance_transfer_duration_months
For travel rewards, applicants might consider the card_name, thanks to 4X points earned on travel (for PenFed Honors Advantage members) and 3X points earned for non-members. The card also features a 50,000-point welcome bonus once you spend $3,000 in the first 90 days of account opening.
