First Person: The Benefits of Credit Union Credit Cards

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If you are a young adult looking for the best option in a credit card, don't overlook cards issued by credit unions. While, like all credit cards, credit union cards have some disadvantages, their advantages make them an excellent choice for some consumers. Here are a few factors to consider when evaluating credit union credit cards.

Interest rates are capped

Federally chartered credit unions cannot charge more than 18% on credit card balances, and you may be able to find a credit union credit card with a rate well below this level. While 18% is a hefty rate, it is far lower than the maximum rates often charged on bank credit cards, which can exceed 30%. According to a Pew Research study dated October 2009, advertised interest rates on credit cards offered by the largest credit unions were 20% lower than advertised rates offered by the largest banks, and the median penalty rate (the rate triggered by one or more late or missed payments) on credit union cards was far lower (17.9%) than on bank cards (29.0%).

Fees often are lower than on bank cards

Credit card fees, such as late payment and over-limit fees, often are lower on credit union credit cards than on bank credit cards. For example, at the time of the Pew study, the median over-limit fee on a credit union card was $20 versus $39 on a bank card and the median late fee was also $20 on a credit union card versus $39 on a bank card.

You may be able to roll over a balance from a bank card to a credit union credit card fee-free.

Thus, if you have a high-interest-rate bank credit card on which you are carrying a balance, you may be able to transfer it to a lower-rate credit union card at no cost.

Credit unions are known for their customer service.

Credit unions are nonprofits that are owned by their members not by shareholders. As a result, as a group, they have a reputation for making good customer service a priority.

While all of these factors make credit union credit cards an attractive option for many consumers, they do not mean that all credit union credit cards are better than all bank credit cards. There are, for example, bank credit cards that charge no annual fees and have low interest rates. Also, no-charge balance transfers are sometimes offered by bank credit card issuers, and customer service can be excellent at some bank branches. Thus, while, studies show that bank-issued credit cards as a group are more expensive than credit union-issued cards, there certainly are exceptions.

Further, for consumers who don't carry a balance, the rewards on some bank cards may be more attractive than on many credit union cards.

Also, your accounts and loans at a credit union may be subject to cross-collateralization. That means that collateral for one loan (such as an auto loan) at the credit union also may be used as collateral for other loans with the credit union, including otherwise unsecured credit card balances. Likewise, money in checking or savings accounts could be considered collateral for a loan or credit card balance. Therefore, it is important to be aware of this exposure when obtaining loans and credit cards with credit unions.

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