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Should You Apply for a Credit Card from a Credit Union?

by Francine Huff

Fed up with rising interest rates and other unfair practices at banks, many consumers are taking their business to credit unions. Opening an account at a credit union may allow you to find more competitive credit card rates and other services.

Becoming a Member

Credit unions are not-for-profit organizations that are owned by their members and operated by mostly volunteer boards. Banks are owned by outside stockholders and run by paid boards. Credit unions also pay dividends to members instead of shareholders.

In many cases, membership in a credit union is restricted to a certain group of people, such as members of a church, employees of a company, or people who live in a certain community. You may have to ask around to find a credit union because they don't always advertise. The Credit Union National Association, a trade group, has an online locator to help find a credit union.

Credit Card Deals

Credit unions control only 1% of overall credit card lending, according to a study by the Pew Charitable Trusts. However, credit unions were found to have prices lower than the largest banks. "In July 2009, median advertised purchase rates were between 9.90 and 13.75% on surveyed credit union cards, approximately 20% lower than comparable bank rates," the Pew report states.

Here are some things to look for when shopping for credit card deals at credit unions:

  • What are the rates for credit card cash advances? The Pew study found that cash advances for credit cards were higher at banks than at credit unions. Median cash advance rates at banks ranged from 20.24% to 21.24%. That compared with a median of 10.2% to 13.75% at credit unions, which is more than 35% lower than the bank rates.
  • Is there a penalty rate for paying late on the credit card or going over the limit? In July 2009, the twelve largest banks all had penalty rates; those rates were as high as 30.24%. Only seven of the largest twelve credit unions imposed penalty rates for late payments, and none imposed a penalty rate for going over the limit.
  • Are credit card rates fixed or variable? In July 2009, 64% of credit unions had fixed rates, while less than 1% of bank cards had fixed rates.

Get the Services You Need

When comparing credit unions, you should also find out what kind of rates are offered on their products such as CDs, checking accounts, and savings. Comparing products can help you decide if a opening a credit union account is right for you.

Published 03/09/10 (Modified 11/20/13)

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