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
-
Heirs Inheriting Crypto? Don't Make It a Headache for ThemIf you have cryptocurrency in your estate, you'll need meticulous plans and clear instructions to ensure beneficiaries don't lose out after you're gone.
-
DIY Retirement Planning: A Smart Move or a Risky Endeavor?You can cut the cost of retirement planning by doing it yourself. But for something this important, it might be wiser to call in the professionals.
-
Galentine's Day: A Time to Promote Financial Literacy Among FriendsHere are three things women can do to help their friends gain financial knowledge and confidence.
-
CPI Report Puts the Kibosh on Rate Cuts: What the Experts Are Saying About InflationCPI Consumer price inflation reared its ugly head to start the year, dashing hopes for the Fed to lower borrowing costs anytime soon.
-
Should You Get a Home Warranty?A home warranty could lower your expenses for certain repairs, but you should weigh whether paying the premium is worth it.
-
How to Use Good Debt (While Identifying and Avoiding Bad Debt)Not all debt is bad, but knowing the difference between good debt and bad debt and how to use them can help you get ahead financially and stay ahead.
-
Four Potential Tax Changes to Keep Your Eye OnMany taxpayers may be surprised by a larger tax bill if the TCJA isn't extended. Check out these proactive strategies to help mitigate some of the impacts.
-
What Can Happen if You Live Together Without a Cohabitation Agreement?Lots of people live together without being married, and there's nothing wrong with that, but if things go south or one partner dies, complications can ensue.
-
Toyota Recalls More Than 140,000 Vehicles Including Lexus SUVsToyota issued a recall affecting Tacoma and Camry models, as well as the Lexus RX and NX vehicles.
-
Extra Cash? Should You Pay Off Debt or Invest?Depending on your financial situation, you might benefit from paying off debt, investing or both. Here are some things to consider before deciding.
