While most of you are still getting your primary credit cards from national banks, a growing number of you are tapping credit unions and community banks for these cards instead, according to a new study.
That is, 68% of national banks last year issued consumers their primary cards and have an even stronger lead among consumers who also bank with them, according to the study by PYMNTS Intelligence and Elan Credit Card. This, however, is a significant decline from the 76% that big banks issued in 2020, as shown in the study, which surveyed 2,088 U.S. consumers who earn more than $100,000 annually.
By contrast, credit unions and small banks — which still have relatively small market shares — have increased their shares over the same time period. Credit unions grew their share of primary credit cards from 6% in 2020 to 8.3% in 2023, while community banks increased theirs from 2.3% to 5.1% in the same time period.
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The numbers aren’t massive, but they certainly indicate some shifting preferences, especially, as the study states, national banks trend in the opposite direction.In addition, one in four survey participants said they are most likely to use either a credit union or community bank for their next credit card application.
“Though modest in absolute terms, these shifts represent sizable relative gains,” PYMNTS and Elan say in the study.
The appeal of going small
There are a number of reasons to consider joining a credit union or community bank, especially during unsettling financial times.
As Kiplinger previously reported, lower fees (credit union members never pay more than 18% interest on their credit cards, for example). In fact, a February 16 report from the Consumer Financial Protection Bureau (CFPB) found that the 25 largest credit card issuers are charging interest rates that are anywhere from 8 to 10 points higher than smaller banks and credit unions.
“This difference can translate to $400 to $500 in additional annual interest for the average cardholder,” according to the CFPB report. This rings true regardless of a person’s credit score.
In addition, a more intimate approach and personal relationship with customers that credit unions can offer are also potential reasons for changing preferences, experts say. As opposed to big banks, where profit is the priority, credit unions are member-owned, which means their members are kept front of mind.
Banking locally also ensures that your money stays in your community. As shopping and sourcing locally increase in popularity, perhaps so too does banking locally in the interest of community.
According to the study, key features that participants valued most — and that credit unions and small banks could improve on — include rewards and cash-back programs.
If you’re interested in exploring credit unions as an option for your next card, some of Kiplinger’s top picks include Alliant, which offers low fees and attractive CD options, as well as Bellco and Connexus, each for their ranges of free checking account options and savings yields. You can learn more about each one here.
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FAQs
Small banks are good when compared to big banks because they cost less which means they take care of loan interest rates etc.. hence most people use them. With this you can get complete information about which credit card is best.
Why do people use smaller banks? ›
Lower fees: Some community banks charge lower fees than national banks. For instance, fees for overdrafts and nonsufficient funds (NSF) are 13-19 percent lower at small banks and credit unions than at large banks, according to a 2021 report from the Consumer Financial Protection Bureau.
Why do people use credit unions instead of banks? ›
People choose banks primarily because of the convenience of multiple branches across the country, along with better technology. On the flip side, people choose credit unions primarily because of discounted loan rates, higher interest rates and better customer service.
What is one advantage of using a smaller bank or credit union? ›
Compared to megabanks, local institutions offer lower fees, more free accounts, relationship-based banking, and personalized products and services. When you're ready to make the switch to a local bank, you'll want to visit the credit unions and community banks in your neighborhood.
Why are people switching to a credit union? ›
According to a study by Informa Research Services, credit unions have lower average rates on credit cards, auto loans, personal loans, and home equity lines of credit. In addition, credit unions have higher average return rates on personal savings, checking, money market, and 1-year certificate accounts.
Why do people not like big banks? ›
Some Cons of Big Banks
There are downsides to big banks. In some cases, larger financial institutions may offer less competitive rates on loans and charge larger fees than community banks or small credit unions. If you take out a loan with a big bank, it might take longer to process, too.
Is it better to bank with a small or large bank? ›
Average account fees tend to be lower at small banks than at bigger institutions. Smaller banks, on average, offer higher rates on interest-bearing checking accounts, savings, and CDs. Also, smaller institutions provide better terms on credit cards and small business loans.
Is there a downside to a credit union? ›
Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass. May offer fewer products and services.
What is safer a bank or credit union? ›
Just like banks, credit unions are federally insured; however, credit unions are not insured by the Federal Deposit Insurance Corporation (FDIC). Instead, the National Credit Union Administration (NCUA) is the federal insurer of credit unions, making them just as safe as traditional banks.
Are credit unions safer than banks during a recession? ›
bank in a recession, the credit union is likely to fare a little better. Both can be hit hard by tough economic conditions, but credit unions were statistically less likely to fail during the Great Recession. But no matter which you go with, you shouldn't worry about losing money.
Credit unions have an advantage over banks when it comes to interest rates. Unlike banks, credit unions aren't profit-driven. Some banks offer higher rates on certain accounts. But these often come with balance requirements or fees for services.
What is the biggest advantage to a credit union? ›
Here are 7 benefits of credit unions that might make you think twice about getting an account with one of the big guys.
- Lower Fees. Credit unions tend to offer lower fees than banks. ...
- Better Savings. ...
- Lower Loan Rates. ...
- Local Experts. ...
- Commitment to Members. ...
- Elected Board of Directors. ...
- Investments in Your Community.
Best-of 2024 Banking Winners:
- Alliant Credit Union: Best credit union.
- Ally Bank: Best bank; best CDs.
- Charles Schwab Bank: Best for ATM access.
- Chase: Best for sign-up bonuses; best for branch access.
- Discover® Bank: Best online banking experience.
First, bankers believe it is unfair that credit unions are exempt from federal taxation while the taxes that banks pay represent a significant fraction of their earnings—33 percent last year. Second, bankers believe that credit unions have been allowed to expand far beyond their original purpose.
Should I keep all my money in a credit union? ›
Your money is protected.
As a federal financial institution, credit unions like Hughes are insured by the National Credit Union Administration (NCUA), a federal government agency. Your savings are insured up to $250,000 by the NCUA, while IRAs are insured separately up to $250,000.
Are credit unions in decline? ›
Although the number of federal credit unions continued to decrease, their membership continued to increase. Federally insured credit unions added four million members compared with a year ago, reaching 139.3 million in the fourth quarter of 2023, according to agency statistics.
Why do smaller banks have better rates? ›
Smaller Lenders – often offer better rates and fewer fees because of the reduced costs of running their business (due to fewer branches, less marketing expenses and employee expenses).
Are smaller banks safer? ›
When it comes to safety, there's no discernible difference between small banks and big banks. "As with bigger institutions, local banks are safe banking options as long as they're federally insured," Insider says.
What is the main disadvantage of a big bank? ›
Adjustable interest rate APR based on corporate policy changes or product and service modifications can lead to lower earnings and additional costs. Big banks often charge monthly service fees for account maintenance, whereas local community banks are more likely to offer customers fee-free account service.
What is the significance of small finance banks? ›
The main significance of small finance banks is to provide inclusion to underdeveloped areas. These banks provide provisions for saving vehicles to underserved or unserved sections of society. These banks provide financing to the small business units in rural sections.
