Shopping for a new credit card? Don't overlook smaller banks

Fewer fees, low APRs, customer satisfaction make regional banks a sound option

Rebecca Lake
Personal Finance Writer
Making complex credit topics simple

Credit card options from smaller banks, credit unions

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Bigger banks tend to dominate the credit card game, but smaller regional banks are claiming a growing share of the market.

According to the 2017 J.D. Power Credit Card Satisfaction survey, the number of active regional bank credit card accounts has increased 24 percent since the fourth quarter of 2014.

On average, there was only a 10-point gap in overall customer satisfaction between regional bank card issuers and national issuers.

A December 2017 CreditCards.com survey found that, when it comes to plain vanilla credit cards with a low annual percentage rate, smaller banks and credit unions have an edge over bigger banks.

Among 100 cards surveyed, 38 offered an APR of less than 10 percent and 32 of those were issued by a credit union. Overall, 81 cards featured rates below 12 percent and nearly all of them were issued by credit unions or regional banks.

Aside from the potential to land a lower APR, credit cards from smaller banks can offer other advantages. And preferring a smaller bank or credit union to a larger bank doesn’t necessarily mean you have to forgo rewards or other perks.

But there might also be some potential drawbacks to consider before choosing a card from a small bank or credit union.

Credit cards from smaller banks: 3 points to consider

  • Fees: When paired with low APRs, low- or no-fee cards from smaller issuers can help score savings.
  • Rewards programs: Smaller banks might struggle matching big banks’ more luscious perks, but they do offer competitive options.
  • Eligibility requirements: Some smaller banks have geographic limitations; others might be based on employment or military affiliation. 

How big and small bank credit cards compare for fees

To pay an annual fee or not to pay an annual fee? That’s a good question to ask if you’re cost-conscious about using credit.

“Smaller banks are significantly less likely to charge an annual fee, compared to big-name issuers,” says Bob Neuhaus, J.D. Power senior director, financial services. The J.D. Power survey found that customers of smaller banks were more satisfied with the reasonableness of the annual fees they’re charged.

On average, the number of fees charged by the typical credit card is six, according to CreditCards.com’s 2017 credit card fee survey. That includes annual fees, late fees, foreign transaction fees, balance transfer and cash advance fees.

In tallying which cards charge the most and fewest fees, the CreditCards.com survey found the cards that fared best came from credit unions.

  • The PenFed Promise Visa charges a single fee, which applies only if card members opt for paper statements.
  • Two Navy Federal Credit union cards included in the study – the Cash Rewards Visa and the Platinum card – don’t charge a cash advance fee for transactions completed at Navy Fed branch ATMs.

Fewer fees means more savings, enhancing the value of a smaller bank’s credit card when it’s paired with a low APR. 

Other low-fee cards to be found among regional banks and credit unions:

  • The Visa Platinum Rewards Card from Alliant Credit Union, for instance, charges just one fee: a $25 late fee. 
  • The Voice Credit Card from Huntington Bank carries no annual fee or foreign transaction fees and offers a grace period on late fees.
"Smaller banks are significantly less likely to charge an annual fee, compared to big-name issuers."

Smaller banks seek to offer competitive rewards

Your decision in choosing whether to open a credit card with a larger or small bank may hinge largely on the strength of its rewards program. Ideally, your rewards card should be tailored to your lifestyle and spending habits.

“Smaller banks and credit unions have the advantage of being able to personalize the rewards they provide,” says Cyndie Martini, president and CEO of Member Access Pacific, a leading Visa debit card processing platform for U.S.-based credit unions.

One way they do that is by combining credit card rewards with a relationship rewards program. This means each product and behavior is rewarded, says Martini.

  • The Union Bank Rewards Visa, for instance, offers two points per $1 on the first $6,000 in grocery purchases each year, with no annual fee.

    Union Bank – a full-service regional bank with branches in Washington state, Oregon and California owned by The Bank of Tokyo-Mitsubishi – offers a 25 percent rewards bonus when you redeem rewards as a deposit into your Union Bank checking, savings or money market account.

    The bonus increases to 50 percent when you redeem points as a principal reduction payment on your Union Bank mortgage.

  • The bonus makes the Rewards Visa’s rewards rate comparable to that offered by the Blue Cash Everyday Card from American Express. This card offers 3 percent cash back on the same amount of grocery spending annually, also with no annual fee.

Offering additional relationship rewards can allow smaller bank credit cards to compete with cards offered by larger banks. The question is, do they still look as attractive when no additional relationship rewards are offered?

Neuhaus says smaller banks still struggle to compete with bigger banks on the rewards playing field. “It’s more common for cardholders of smaller issuers to say they received only standard rewards, as opposed to extra rewards for promotions or purchases at a particular merchant.”

  • Smaller banks also may offer smaller introductory bonuses for new card members versus larger banks.

    Finding a great card may take a little more digging, says Lou Haverty, founder of Financial Analyst Insider, a news and advice resource website for aspiring financial professionals. However, there are some under-the-radar options for maximizing rewards or cash back.

  • Alliant Credit Union’s Cashback Visa Signature card, for instance, allows you to earn 3 percent cash back on every purchase the first year, decreasing slightly to 2.5 percent back after that. Chicago-based Alliant is one of the largest credit unions in the nation, with nearly $10 billion in assets. 

    The Alliant card has no foreign transaction fees and a $0 introductory annual fee the first year – $59 thereafter. It’s a solid pick if you’re looking for a flat-rate cash back rewards option.
"It’s more common for cardholders of smaller issuers to say they received only standard rewards, as opposed to extra rewards for promotions or purchases at a particular merchant."

Smaller bank credit cards: Read the fine print for eligibility requirements

If you’ve decided to add a credit card from a smaller bank or credit union to your wallet, remember to review the rules or guidelines concerning eligibility.

Credit unions typically have membership requirements you must meet before you can join. You may need to live, work, worship or attend school in a certain geographic area.

Other credit unions base membership on your employment or military affiliation.

  • To apply for a credit card with Navy Federal Credit Union, for example, you must be a veteran, retiree or active duty member of the military, a Department of Defense civilian employee or a family member of a service member or DOD employee.

  • You’re not necessarily shut out of joining a military-affiliated credit union if you’re not in the military, however. For example, you can still join PenFed by becoming a member of an eligible organization, such as the National Military Family Organization or Voice for America’s Troops. 

  • To open a PenFed Power Cash Rewards card and earn 2 percent cash back on purchases, you’ll need to have an Access America checking account. Luckily, this account has no monthly fee if you maintain a $500 minimum balance.

If you’re looking at a smaller regional bank, consider whether there are any barriers to opening a credit card account.

  • KeyBank, for instance, limits applications to individuals living in states where the bank has operations. KeyBank’s reach currently extends to Alaska, Colorado, Connecticut, Idaho, Indiana, Maine, Massachussets, Michigan, New York, Ohio, Oregon, Pennsylvania, Utah, Vermont and Washington.

  • Regions Bank requires you to have a Regions Bank deposit account or a promotional code to apply for a credit card. Regions Bank is a Birmingham, Alabama-based regional bank serving customers in 15 states across the South and Midwest, including Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee and Texas.

Most importantly, know the rewards program structure inside and out before you apply, says Neuhaus. “Our research shows a direct correlation between customers’ understanding of a credit card rewards program and their overall satisfaction with that program.”

See related: The pros and cons of credit union credit cards, 7 ways to get the most from rewards credit cards


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Updated: 07-19-2018