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
-
How to Stay Safe During Summer Storms: What to Know About Lightning RisksLearn how to protect your home, electronics, and personal safety from lightning strikes this summer — plus what your insurance might cover.
-
Ask the Editor — Tax Questions on Disaster Losses and moreAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on paper checks, hurricane losses, IRAs and timeshares.
-
This Savings Account Earns You More Than $4,000. Here's HowSee how a jumbo CD can help you reach your savings goals quicker.
-
These Are the Key Tariff Issues to Watch in Coming MonthsWhile they're not dominating headlines right now, tariffs are not over. Some key dates are coming up fast that could upend markets all over again.
-
What to Know About Treasury Inflation-Protected Securities (TIPS)Understanding what Treasury Inflation-Protected Securities (TIPS) are and how to use them in a portfolio.
-
T-Mobile Offers Senior Phone Plans: Are The Perks Worth the Price?T-Mobile has three senior phone plans. See which perks you receive with each.
-
Should You Switch to a Budget Wireless Carrier? What to Know About Trump Mobile and Other Low-Cost OptionsWith new names like Trump Mobile entering the market, many consumers are curious about affordable wireless plans. Here's how to tell if switching to a budget carrier could actually save you money — and what trade-offs to expect.
-
Bill Bought a Fridge, and Then His Nightmare BeganA Lowe's customer reached out to me after he encountered the retailer's 48-hour return window for major appliances when his brand-new fridge turned out to be defective.
-
Savvy Marketing Tips for Financial Pros From a Financial ProThese strategies for marketing, client acquisition and retention can help financial professionals elevate their business and production.
-
Taste the Nation: Five James Beard Award–Winning Restaurants Worth Traveling ForFrom coastal kitchens to mountain towns, these celebrated restaurants don't just serve meals — they anchor destination-worthy trips for food lovers.
