Credit Card Offers: Banks vs. Credit Unions

December 16, 2009 2 Comments »

In a shaky (at best) credit card environment, cards issued by credit unions may deserve a second look when compared to the typical bank offers. A study was conducted two months ago by Pew Charitable Trusts which reviewed terms for the twelve largest credit card issuing banks vs. the twelve largest credit card issuing credit unions and concluded that credit unions generally offered better terms. However, depending on your personal financial situation, banks may be more generous with rewards and cash back. For example, if you ALWAYS pay of your credit card bill in full each month, then perhaps a bank issued card would be best for your situation. You will never have to worry about APR hikes and will still be able to reap the benefits of the card(s) (miles, hotel rewards, cash back points etc.) On the other hand, if you are not always able to pay off your bill in full, then opting for a card issued by your local credit union may be an ideal choice. According to the study, credit unions are more likely to impose fees, however they are substantially lower than those issued by banks, plus, the credit union card’s APR will be significantly lower than those issued by banks.

According to the study, “In general, the largest credit unions offered lower rates than did the largest banks. In July 2009, median advertised purchase rates were between 9.90 and 13.75 percent on surveyed credit union cards, approximately 20 percent lower than comparable bank rates.” It went on to mention that, “Overall, penalty fees were slightly more common among credit union cards than among bank cards, but credit unions charged significantly lower fee amounts ($20 compared to $39 for most bank cards).”

To better understand why credit unions came out ahead in terms of APR let’s first dig a little deeper into the motives of a credit union…

First, they are not-for-profit, member-owned institutions, and aren’t driven by bottom line figures. The shareholders in which they are trying to please are the members themselves. It makes little sense to attempt to sneak in hidden rate hikes within the terms of conditions when the members are also the owners.

Second, because they are member owned, they are generally willing to work with you during tough times.

And third, credit union’s aim to boost local economies in which they reside as well as spread financial knowledge and superior rates to their owners/customers. Because they are not-for-profit institutions, they can pass their profits on to their members in the form of higher savings rates and lower lending rates.

Do you own a credit card issued by a bank AND a credit union? If so, when do you choose to use each card and what benefits have you seen by owning both?

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  • Nick

    I have a few credit cards only 1 of which is from a credit union. i got it for a balance transfer rate deal and rarely used it after that. i think i have used it maybe 10 times.

  • Credit Card Chaser

    I don’t have any concrete data on this but from what I have seen I would tend to agree with your analysis that credit unions will generally have lower credit card interest rates and banks will generally have better credit card rewards programs.