Using a credit card issued by a small bank or credit union may cost you $400 to $500 less each year than a card issued by a large national bank.
That's the finding of a new survey conducted by the Consumer Financial Protection Bureau. The CFPB found that credit cards issued by small institutions such as community banks and credit unions have much lower annual percentage rates than those issued by larger institutions.
During the first half of 2023, smaller banks and credit unions tended to offer cheaper interest rates than the top 25 credit card issuers across all credit tiers. For people with a “very good” or “outstanding” credit score of 720 and above, the average purchase APR offered by larger institutions was 22.99%, while the average purchase APR offered by smaller institutions was 15.24% . For someone with a good credit score in the range of 620 to 719, the average APR difference was 28.20% versus 18.15%.
The average cardholder carried $5,288 in credit card debt at the end of 2022, according to a 2023 CFPB report. This means the average cardholder could save up to $400 to $500 per year due to the difference in annual percentage rates (APR) from destinations. Small version vs. larger companies.
This could be useful information for the average American today — credit cards have never been more expensive, according to a 2023 CFPB report, and credit card delinquencies are on the rise, exceeding pre-pandemic levels. The Federal Reserve's interest rate hikes starting in 2022 have sent credit card interest rates higher across the board. By June 2023, 15 card issuers had at least one product with a maximum APR of more than 30%, the CFPB found, including nine of the nation's largest credit card companies such as Ally Bank ALLY,
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Credit card analysts said there's no doubt that smaller card issuers are offering lower APR interest rates, especially given the fact that federal credit unions must set their credit card rates at 18%. There are many different factors that go into determining a credit card's APR, including the card's rewards program and the customer's credit score, experts told MarketWatch. But when choosing a credit card, the APR isn't the only consideration, although using a credit card is more expensive than ever.
While smaller issuers have lower APRs, they may not have lucrative rewards programs, and are also less likely to offer a long 0% promotional period, said Matt Schulz, senior credit analyst at LendingTree. Balance transfers using a 0% promotional period can be a way for people with good credit scores to pay off their debt as quickly as possible.
Compared with larger issuers that serve a broader range of card products that cater to a broader group, smaller banks typically offer fewer products and serve a much more local demographic, experts said.
“The right credit card is one that fits your spending and directs you toward the goal you're working toward,” Schulz told MarketWatch. “It's really important to focus on your goals because the prices are so high, and the cost of not shopping around and not having the right card is significant.”
The bottom line is reduce your credit card debt, don't carry a monthly balance, and if you have debt, try to pay it off as quickly as possible, said Ted Rossman, senior industry analyst at Bankrate.
Even the lowest APR isn't that low anymore, and carrying what is now a relatively low rate of 12% over many months or years can be expensive, Rossman said. He added: “Yes, 10% is better than 20% or 30%, but better than all of this is just zero.”
For those with lower credit scores, instead of opening another card with a lower APR, they can also turn to credit counseling services, Rossman added. With low fees, nonprofit credit counseling organizations can help negotiate a lower rate for up to four or five years, he said.
The survey was part of the CFPB's efforts to promote competition and transparency in the credit card market. The credit card market is concentrated, with the 10 largest card issuers covering more than 80% of consumer credit card loans, leading to higher rates, the CFPB said in the survey. Credit card issuers disputed the CFPB's characterization of the industry as lacking competition.
The report found that larger institutions were also more likely to charge higher annual fees than their smaller counterparts, with 27% of large issuer cards charging annual fees compared to 9.5% of smaller companies. On average, annual fees for large institutions were $157 compared to $94 for small issuers.
Ally Bank and Capital One did not immediately respond to requests for comment. City did not respond to a request for comment. An American Bankers Association spokesperson told MarketWatch in an email that the CFPB report was politically motivated.
“CFPB's own data shows that interest rates are set in a highly competitive credit card market, which provides consumers with a wide range of options to find the card that best meets their needs,” said Sarah Grano, ABA spokeswoman. “For example, some consumers may want a card at a lower price while others may prioritize rewards programs or other card features that are important to them. Americans only need to look at their mail and email inbox to see the many credit card options available to them.
