*Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any credit card issuer. This site may be compensated through a credit card issuer partnership.
This article was last updated Dec 06, 2018. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.
Credit unions are often confused with banks because they provide the same basic services, such as checking and savings accounts, personal loans and credit cards. But there are some key differences between the two to keep in mind when it comes time to choose a credit card.
Unlike banks, credit unions don’t have stockholders demanding a market rate of return on their investments, so they can pass profits back to their customers in the form of lower interest rates and fewer credit card fees.
While credit union cards tend to have lower interest rates and no annual fees, they don’t always come with the perks customers take for granted with general rewards cards, including splashy sign-up bonuses, higher points per dollar spent in popular categories and travel benefits. As such, we outline the pros and cons of credit union credit cards to help you decide if having one in your wallet is the best option.
Pro: Lower interest rates
A big benefit of credit union credit cards are their lower purchase and balance transfer interest rates. For example, the $0 annual fee Delta Community Visa® Platinum Rewards Credit Card has a regular purchase and balance transfer 11.75%-15.75% variable APR, although it doesn’t offer purchase or balance transfer intro rates. And the balance transfer fee is None.
Compare it with the $0 annual fee Wells Fargo Platinum card, which offers an intro purchase rate of 0% for 18 months and an intro balance transfer rate of 0% for 18 months on qualifying balance transfers. And you’re going to pay a balance transfer fee of 3% for 120 days, then 5%.
Con: Minimal rewards
Two of the most effective ways credit card companies lure you to their offerings are via tempting sign-up bonuses and rewards for spending in popular categories like travel, dining, gas and groceries.
The Alliant Cashback Visa® Signature Credit Card only allows cardholders to earn 2.5% cash back on all purchases. There’s no need to worry about remembering spending categories with this flat-rate card. But it doesn’t come with a sign-up bonus and some may be put off by the card’s annual fee of $99, waived the first year.
In comparison, the Wells Fargo Propel American Express® card, with a $0 annual fee, gives you a much bigger bang for your buck. The benefits and perks that come with this card are much better, starting with a welcome offer that allows new cardmembers to Earn 20,000 bonus points when you spend $1,000 in purchases in the first 3 months - that's a $200 cash redemption value. That converts into $200 you can redeem for travel at the Go Far® Rewards website.
Cardmembers Earn 3X points on eating out, ordering in and popular streaming services, 3X points on gas stations, rideshares and transit, and 3X points on travel including flights, hotels, homestays and car rentals. Earn 1X points on other purchases. And for a card with no annual fee, you can’t beat all the travel and purchase perks that come with it, including travel accident insurance, an emergency assistance program that offers medical, legal, personal and travel help, lost or damaged baggage insurance, car rental loss and damage insurance and roadside assistance.
Pro: Flexible payments
Credit unions have a reputation for working with customers during tough times to help them get back on their feet. If you are having trouble making your credit card payments, you are more likely to catch a break with a credit union because of their superior customer service.
An example of this are the services offered by PenFed Credit Union under its Financial Hardship Center for members having trouble making payments. It has a team that helps members explore their options and come up with customized solutions — like deferred payments, a forbearance agreement, repayment plans and modification — to help them get back on their feet.
Credit unions are also more likely to offer members a second chance at a credit card if they’ve been denied in the past. As long as you can show that you’re improving your situation, they will usually find a way to help you out.
Credit unions are known for cross-collateralization, which is where all of your credit union accounts are tied together. If you have an auto loan, a credit card and a checking account with a credit union, all of those accounts are linked. This can work against you if, say, you’re behind on your credit card payments, because your credit union could then tap into your checking account without warning to cover your past due balance if you haven’t paid by a certain time.
This could wreak havoc on your accounts, potentially causing costly overdrafts. Cross-collateralization is something that’s covered in a credit union’s fine print, which is oftentimes overlooked when signing up for a new account.
Pro: Membership discounts
Member discounts are a perk you get just because you are a credit union member. It pays to check your credit union’s website to see what may be available to you. The Affinity Plus Federal Credit Union offers discounts on tickets at Nickelodeon Universe at the Mall of America in Minneapolis. Golden 1 Credit Union members get preferred pricing to Sacramento Kings NBA basketball home games and 15% off merchandise at team stores.
The website LoveMyCreditUnion.org serves as a credit union clearinghouse for deals like a $100 cash reward for new cellphone lines switched to Sprint or savings of up to $15 on TurboTax products. You can also get access to deals where you earn points every time you spend at retail outlets on clothing, accessories, music, dining, toys, electronics and department stores.
Con: Entry requirements
This is what most consider the catch when it comes to working with credit unions – you have to be approved for an account before you can apply for one of its credit cards. It could be as simple as donating $5 to an affiliated charity, or it could be as complicated as working in a specific sector of the job force. The National Credit Union Administration offers a great credit union locator that you can use to find options in your area. Once you choose a credit union, you can contact them directly to check for membership requirements.
Pro: Low fees
When it comes to credit union credit cards, most offer low to no annual fees. These cards also tend to not charge fees for things such as foreign transactions, overdrafts, late payments, cash advances or balance transfers like regular credit cards. Be sure to check your cards terms & conditions for a full list of fees.
Con: Fewer perks
Despite nearly half of Americans fail to take advantage of valuable benefits that come with their credit cards, according to a CompareCards.com study. Companies use perks as a way to attract and keep their customers. Those benefits can include trip and baggage insurance, rental car waiver coverage, roadside assistance, access to a concierge, cellphone damage, extended warranty and purchase, price and return protections. While some credit union cards come with some of these perks, most of them focus on what they do best — customer service and lower interest rates and fees.
The bottom line
The combination of favorable pricing differences and overall better customer service satisfaction make a compelling case on why consumers should consider credit unions when looking for a credit card. These cards are the most affordable options on the market but don’t always have the rewards and benefits that come with many general cards on the market.
If you’re open to having more than one credit card — and can use them all responsibly — you may want to consider having a general credit card for rewards and primary purchases, and a credit union credit card for larger purchases and emergencies, giving you the best of both worlds.
Check out our roundup of Best Credit Union Credit Cards here.