Why More People Are Using Small Banks And Credit Unions

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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