A Cheaper Alternative: Credit Unions

With the continuing high cost of carrying credit cards, consumers are moving away from credit card spending and moving to using cash or debit cards instead. However, consumers should also be aware that there is a cheaper alternative to bank credit cards: credit unions.

Credit unions have long been providing credit cards for a select population of consumers. Unlike traditional banks, credit unions are actually non profit institutions that provide credit cards to people who are also their members. As a result, holders of credit union credit cards usually face relaxed fees and interest rates. With credit unions, the profits that the institution takes in ultimately ends up with its members taking the form of much more affordable rates and fees. With banks, the profits goes to the company’s stockholders which ends up making bank credit cards much more expensive. Aside from that, credit unions also enjoy being tax free which translates to a lower business cost. Again, this ends up as savings for their card holders.

However, credit unions still face the same economic risks that banks do. Credit unions are also vulnerable to an economic downturn and, in fact, ever since the economic recession hit, there have already been 23 credit unions that closed down. Credit unions also have to protect themselves from risky borrowers and they usually require membership fees that range from as low as $5 to as high as $25.

Still, credit cards from credit unions are quite a bargain compared to bank credit cards. According to a Pew Charitable trusts study, credit union credit cards offer interest rates lower to bank credit cards by 20%. Most other fees are also much lower with credit union credit cards. Overcharge fees are $19 lower compared to credit cards from banks. Whereas banks impose penalty interest rates on their credit cards at 29%, credit unions only charge 18%. Also, a lower number of credit union credit cards charge fees for balance transfers compared to bank cards, 25% for credit unions against 88% for banks.

Credit union credit cards are not for everyone, however. For instance, credit card holders who enjoy generous rebates are better off with credit cards from a major credit card company. Membership in a credit union is also reserved for a few individuals. The criterion for membership for a credit union usually depends on where a consumer works, his religion or what type of job he or she holds.

For those who are interested in joining in a credit union, there are a number of sources they can use to find out which credit union they are eligible to join. It is also important to make sure that, whatever credit union they want to join, it should be National Credit Union Administration insured.