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.
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
- 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.
- 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
- 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
- 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:
APR on purchases
12.5 percent fixed
15.99 percent variable
APR on cash advances
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
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.
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."
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
"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.
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
Some of the nation's largest credit unions include
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
"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