Credit Unions: The Low-Interest Credit Card Alternative to Banks

Not-for-profit health care providers want you to be healthy almost as much as you do. Public and private non-profit universities have higher graduation rates and better outcomes than most for-profit colleges. And not-for-profit financial institutions often offer lower interest rates, clearer terms and fewer penalties on their credit cards than do their revenue-maximizing counterparts.

Even though the prime rate (the rate at which banks lend to their most creditworthy customers) is at a historic low, and banks can borrow money essentially without interest, credit card interest rates are stubbornly high. According to our analysis of over 500 credit cards, the average APR for excellent credit is a staggering 13.5% for traditional for-profit banks.

Not-for-profit credit unions, though, are a different story. Across the board, they offer lower interest rates on loans and credit cards, greater transparency, fewer and smaller fees, and higher dividends on savings accounts. We’ll show you five credit unions that offer almost half the APR of for-profit banks, with lower fees to boot.

What are Credit Unions?

A credit union is a cooperative financial institution with a mission to provide affordable, available services to the community it serves. Credit union members double as its shareholders: Every person who joins a credit union becomes a partial owner on a one-man-one-vote principle. Every member has the same stake in the company, irrespective of how much money is deposited. The institutions are charged with providing consumer-friendly financial services and offer the same products as traditional banks.

By definition, credit unions must restrict their membership to a certain region, religious organization, place of work or interest. In practice, though, this requirement is interpreted broadly. A number of credit unions will allow anyone to join with a nominal donation to charity.

The All-America Winners

We’re profiling three credit unions that offer membership to everyone who lives in a certain area, or anyone who donates to their chosen charity. They made the list not only because of their low interest credit cards, but because they’re, well, just all-around better.

 

Purchase APR

Cash Advance FeeForeign Exchange Fee

Penalty APR

Traditional Bank

13.5%

5%3%

29.99%

Northwest FCU

7.0%

0%1%

0%

Addison Avenue FCU

7.25%

0%0%

0%

Lake Michigan CU

6.25%

3%1%

0%

Credit Union Average

6.83%

1%0.67%

0%

Difference

6.67%

4%2.33%

29.99%

Northwest Federal Credit Union Visa Platinum: This credit union offers membership to anyone who makes a one-time $10 donation to the Financial Awareness Network, anyone whose family member made that donation or employees of over 500 partner companies.

The Visa Platinum comes with an initial rate of 7% APR, which then varies monthly with the prime rate. Northwest is incredibly consumer-friendly–when traditional banks respond to a missed payment with a sky-high interest rate, this one doesn’t have any penalty interest rate at all. Further, they charge no cash advance fees whatsoever.

Northwest is also active in the community, providing educational materials to students, online budgeting tools and a Member Solutions Program to help customers facing bankruptcy or foreclosure.

Addison Avenue Federal Credit Union Visa Platinum Rewards: Headquartered in Palo Alto, California, Addison Avenue provides rewards and a low APR. It offers a 1 percent rewards rate (around the industry average) but carries an interest rate that’s nearly than half an average traditional bank’s as well as a credit limit of up to $50,000. The Platinum Rewards APR is only 7.25%; as a comparison, the Capital One No Hassle Cash Back card offers similar rewards but lugs around a minimum APR of 12.9%.

The Visa Platinum Rewards also comes with no foreign transaction fee. Because Visa charges 1 percent on foreign transactions, Addison basically eats the cost so its members don’t have to pay.

Although Addison Avenue only served employees of HP at first, they’ve since expanded to offer membership to anyone who donates $5 to the Financial Fitness Association.

Lake Michigan Credit Union Prime Link Visa: Lake Michigan’s card makes the list because of the incredibly low APR–we usually only see this with military credit cards. It’s only 3% above the prime rate (which is currently 3.25% and has been for quite some time). A traditional bank marks up the prime rate something on the order of 11.2%. That’s pretty impressive.

Anyone can join Lake Michigan Credit Union. It’s free for those who live, study, work or worship in a number of Michigan counties; their families; or anyone who makes a donation to the West Michigan chapter of the Amyotropic Lateral Sclerosis (ALS) Association.

Buy Local, Save Lots

While Northwest, Addison and Lake Michigan offer some great low interest rate cards, some regionally focused credit unions stand out as well. Truliant Federal Credit Union, serving the Carolinas, Ohio and Virginia, offers an APR of 8.15% on its Visa Classic (4.9% plus the prime rate). Like Addison, it offers no cash advance or foreign transaction fee, and will never charge late fees of more than $5. “We develop our products and services to be convenient and easy for our member-owners to understand and use, as well as educate them on their features and benefits so that they can make informed decisions.  We also do not want them to get in over their heads,” says Christian Fletcher of Truliant.

Take the time to see which credit unions you qualify for based on your residence and workplace. Traditional banks have nationally known names, brand recognition and huge marketing budgets. Remember, though: Credit unions try to please their shareholders, too. If those shareholders happen to be customers, well, so much the better.