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Credit unions usually offer better deals than banks on credit cards

If high fees and Fed hikes are giving you the credit card blues, relief might be around the corner.

Credit unions offer lower interest rates and fees, and tend to be friendlier and more flexible when customers are overextended or late with payments.

Bankrate.com recently surveyed 222 card products issued by the 50 largest credit unions. The results show significant cost differences between their cards and ones from the major issuers.

How they stack up
Among the findings:

  • Fixed rates: About two-thirds of credit union cards feature fixed annual percentage rates, with an average cost of 13.06 percent. That's a drop from this time last year when the average fixed APR was 13.83 percent. Less than a third of bank-issued cards have fixed rates and their cost has steadily increased in the past 12 months. The current average is 16.17 percent, compared with 13.28 percent last year.
  • Variable rates: Credit union cards averaged 13.26 percent, compared with 16.23 percent at banks.
  • Cash advances: Credit unions rarely charge higher interest rates for cash advances. Of the 50 institutions Bankrate.com surveyed, only two had steeper APRs. And only about one-third charged a fee for the transaction. The most common fee was 1.5 percent to 2 percent. Some charged as little as 50 cents for a cash advance from an ATM. Large banks, on the other hand, routinely charge 19 percent interest or more, plus a fee of 2 percent to 5 percent of the transaction.
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  • Annual fees: Of the 222 credit union cards Bankrate.com surveyed, only 36 carried annual fees, with an average of $22.50.
  • Late fees: Whereas major issuers usually slap a $29 fee on tardy customers, credit union cards averaged $12.16. About 50 cards carried no late fee at all!
  • Over-the-limit fees: Big banks like the number 29 for over-the-limit fees, too, whereas credit unions commonly charge a flat $5 or $10. Some cooperatives don't penalize customers until they exceed their limit by a certain amount. For example, at Suncoast Schools Federal Credit Union in Tampa, the $15 fee is not imposed until you exceed the credit line by 8 percent, Bankrate.com found. A few credit unions use a sliding scale. Redstone Federal Credit Union in Huntsville, Ala., charges 5 percent of the minimum payment, but never more than $100.
  • Interest-free periods run about the same as banks, at 25 days, but customers find there is a lot more grace overall at credit unions.

"It's all related to the pro-consumer approach that credit unions take," says Rae Miles, vice president of business development for the Credit Union National Association, a trade group representing 90 percent of the nation's 11,000 cooperatives. "We tend to offer lower rates overall than the competition."

Bank vs. Credit union
Here's a comparison of the key features of a standard credit card from the country's biggest credit union, Navy Federal, with a Platinum Plus MasterCard from MBNA, the nation's No. 3 card company:
 
Navy Federal
MBNA
APR on purchases
12.5 percent fixed
15.99 percent variable
Grace period
25 days
25 days
Annual fee
None
None
APR on cash advances
12.5 fixed
3.9 percent for four billing cycles on cash advance checks, going to 15.99 percent variable; 15.99 percent variable on ATM cash advances
Cash advance fee
None, if withdrawn from member service center or ATM; 50 cents if taken from another institution's ATM
3 percent of transaction amount, but no less than $5
Late payment fee
None
$29
Over-the-limit fee
$10
$29

A glance at Bankrate.com's 10 best credit union card deals vs. the best of the banks gives a good overall comparison. Eight of the credit unions' cheapest deals are single-digit fixed APRs. Only one has an annual fee. Six of the banks' best bets carry annual fees and eight feature variable rates.

Why credit unions often are better deals
The reason credit unions can offer better value is because they are nonprofit institutions owned by their members. Banks are owned by stockholders who want solid returns on their investments.

And while large issuers spend big bucks blanketing millions with expensive mailings, sales calls and Internet pitches, credit unions market their cards to members only.

"Our direct mail tends to be envelope stuffers that come with a statement," notes Miles.

Credit unions react more slowly to rate changes, says Mike Schenk, vice president of economics and statistics for CUNA. The recent rate hikes by the Federal Reserve have big banks pushing APRs upward within one to three months, Bankrate.com research has found. Credit unions hang back longer.

"We react to those increases more slowly than our competitors on the loan side," says Schenk. "We tend to be lower to begin with and the rates aren't adjusted as much."

They also are more flexible when customers don't live up to their card terms. "What tends to happen in some cases is there is a peer pressure put on that person to perform," says Miles. "We tend to approach it very humanistically. Rather than hiking a rate, we will try to work it out."

Who's better off with a bank card?
But folks who pay off balances and use their cards to get air miles and cash-back bonuses are probably better off with banks. Credit unions, particularly small ones, tend to give fewer perks.

Gerri Detweiler, educational adviser at myvesta.org, a nonprofit, Internet-based financial counseling and services center, says she is a big fan of credit unions, but acknowledges they can be limited.

"If there is one drawback to credit unions, it's that you may not be able to get some of the service you get at a bank," she says.

Detweiler has a charge card from the Marion Indiana School Employees Federal Credit Union, but says she prefers using her bank-issued card.

"I like the frequent flier miles," she says. "The credit union card is the plain vanilla variety with no frills."

The cooperatives also are stickier with credit lines. In a 1998 survey of its members, CUNA noted that the average credit limit granted for users' primary Visa or MasterCard was $6,757, compared with $8,937 at banks -- a difference of $2,180.

"This suggests that many credit unions may still be somewhat conservative in their credit-granting policies," the CUNA survey said.

Not all offer plastic
And not all credit unions offer credit cards. CUNA statistics show that only 47 percent of institutions provide plastic. But due to the size of some credit unions, 89 percent of people who are members have access to cards.

Having access to credit union benefits is, of course, contingent upon membership eligibility. Credit unions serve people who have something in common, such as where they work or live.

Some of the nation's largest credit unions include Navy Federal, the Pentagon Federal Credit Union, the Boeing Employee Credit Union and United Airlines Employee Credit Union.

"In many cases, if a family member belongs to a credit union, you can join, too," says Detweiler. "Some of them have very broad membership bonds."

Banks and credit unions are locking legal horns because credit unions are fighting to expand their reach. And banks take issue with the fact that credit unions don't pay taxes.

"The banks feel very threatened by credit unions," notes Detweiler, who qualified for her credit union membership because of a summer job she worked in 1984.

She especially likes the yield on her money market account -- "better than 5.5 percent" -- and advises many of the people she works with to check out credit unions.

"I almost always recommend them to people who are having financial difficulties," she says. "Because of the bonds between members, there's usually more of a personal touch. They might sit down with you and try to work out something creative."

-- Posted: April 24, 2000

 

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