Getting a credit card from a larger bank sounds like a good idea. After all, some come with generous cash back rewards to help you save on everyday purchases.
However, larger financial institutions don't always have the best customer service, and people are starting to take notice, according to a recent study.
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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
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.
Credit unions usually tout lower interest rates than national banks. The reason for this is that they're member-owned, meaning everyone who has an account with them is a partial owner.
Because many don't pay out to shareholders, they can keep their rates lower, giving them an edge on larger financial institutions. And it could save you hundreds of dollars over the life of the loan in interest fees.
It can also help you save more money quicker, as they tend to have higher rates of return on high-yield savings accounts and CDs.
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.
The bottom line
The appeal to going local for banking is slowly growing. With one in four considering community banks or credit unions for their next credit card, it indicates a shift in the way some view smaller financial institutions.
Credit unions do an exceptional job offering lower interest rates on loans and higher rates on savings and CDs. The only drawback to going with smaller options like community banks is you might miss out on better cashback rewards offered by larger banks. Therefore, prioritize what you need from your next credit card or savings account before making the switch.
RELATED CONTENT
-
This is the Best CD to Get Amid Rate UncertaintyThis CD helps you earn more than 4%, with quick access to your cash if you need it.
-
Is It Time to Cut the Cord on Your Landline?With rising costs and evolving technology, many are rethinking their home phone service. Here's how to decide if it's time to let go.
-
Can AI Help With Your Finances?ChatGPT and other artificial-intelligence tools will streamline certain tasks, but don't count on them to get everything right.
-
Neglecting Car Maintenance Could Cost You More Than a Repair, Especially in the SummerWorn, underinflated tires and other degraded car parts can fail in extreme heat, causing accidents. If your employer is ignoring needed repairs on company cars, there's something employees can do.
-
'Drivers License': A Wealth Strategist Helps Gen Z Hit the RoadFrom student loan debt to a changing job market, this generation has some potholes to navigate. But with those challenges come opportunities.
-
Financial Pros Provide a Beginner's Guide to Building Wealth in 10 YearsBuilding wealth over 10 years requires understanding your current financial situation, budgeting effectively, eliminating high-interest debt and increasing both your income and financial literacy.
-
You're Divorced, But the Work Isn't Over: A Guide to Five Financial Tasks to Do ASAPOnce your divorce is settled, don't waste time. You've got to tie up some important loose ends or risk losing money and facing tax consequences.
-
Integrity, Generosity and Wealth: A Faith-Based Approach to BusinessEntrepreneurs who align their business and financial decisions with the biblical principles of integrity, generosity and helping others can realize impactful and fulfilling success.
