Consumers interested in deepening their discounts this holiday season are passing over bank-backed credit cards and choosing a credit union credit card instead.
With the National Retail Federation predicting that the average holiday shopper will spend approximately $749.51 this year, paying with the wrong credit card could cost you plenty. Card Hub says that the country is expected to end the year with consumers owing $43.5 billion more in credit card debt, so staving off debt in 2013 is top of mind for many.
While some banks are offering a 0% APR credit card rate, these rates are often “teasers” where the low rate is only offered for a limited amount of time, ballooning up to 20% or beyond once that period expires. Additionally, in some cases fees apply that may not be as apparent to the consumer who may be more focused on the rate.
Considering the average household carries $6,700 in credit card debt, adding more to that balance this holiday season could be financially devastating if the amount is increased due to high rates and fees.
Comparing Credit Union to Bank Credit Cards
How does the average consumer make an educated decision about which card to choose when confronted with payment on Cyber Monday?
Neeti Patel, VP/Card Services at Pentagon Federal Credit Union ($15 billion, Alexandria, VA) explains why paying with a credit union card may be more advantageous. “Generally, credit cards from a credit union are not saddled with latent fees and charges. Also, at PenFed, we don't do any risk-based pricing, so all members receive the same interest rate on the product, regardless of their credit profile. Again, because we have a different business model than a traditional bank, we are able to offer higher rewards and lower rates across our suite of credit card products.”
According to the Credit Union National Association, the rate cap for credit unions tops off at 18%, but the actual rate depends upon the state in which the credit union is located, adds Steven Bugg, Chief Marketing and Member Service Officer at Heritage Federal Credit Union ($431 million, Newburgh, IN). “On average, bank credit cards have higher caps and interest rates run between 12% - 18% while the average rates for credit union cards are somewhere between 10% - 14%.” Bugg adds that credit card rates at Heritage FCU range from 7.99% for Visa Platinum to 14.4% for Visa Classic.
Additionally, when trying to decide between paying with a credit card from a local retailer versus your credit union credit card, experts suggest that the consumer should first decide how often the card will be used. Ken Lin, Founder and CEO of CreditKarma.com writes in a Huffington Post article, that a retailer credit card can be a good payment option, but only if you don't plan to carry a balance. “The downside of these cards is that they have high interest rates, low credit limits and fewer protections than a regular credit card,” he says. “So be careful when using these; the great 20% discount you received to open the account could easily turn into 20% more once you pay interest.”
Shopping Smart During the Holidays
Not only should consumers be aware of how using plastic ultimately impacts their payment, they need to be cognizant of how to protect their wallet in a vulnerable world. Bugg offers important tips every cardholder should keep in mind:
Review cardholder activity and immediately report any suspected or unusual transactions to the credit union.
When possible, sign up for e-statements rather than receiving paper ones.
Make photocopies of financial cards (front and back) that you carry, and keep them in a safe place. If your wallet is stolen, you can promptly and accurately report the loss.
Don’t write passwords or PINs on the back of credit cards.
Limit the information you supply on entries to win a prize or shopping spree.
Contact the U.S. Postal Service if you don’t receive mail for a few days. You want to confirm that your mail—with preauthorized credit card offers, for example, hasn’t been diverted by a thief filling out a change of address form in your name.
Mail bills from a locked mailbox or at the post office.
Get off prescreened credit card lists at optoutprescreen.com or dmaconsumers.org.
Beware of fraudulent e-mails with authentic-looking logos and familiar graphics.
Shop at web sites that show a closed padlock in the frame of your browser window—separate from the vendor Web site window. URLs (uniform resource locator, or online address) that require a safe connection at checkout start with https: or s-http:.
For Navy Federal Credit Union members ($51 billion, Vienna, VA), saving money and being safe online is easy with the credit union’s special Member Mall. Randy Hopper, AVP/Credit Card Lending says that Navy Federal members receive enhanced credit card rewards by shopping at one of the 750 plus merchants. “There really isn’t an item you can’t find at our Member Mall,” he says. “Many offer free shipping, others offer coupons to save 10% on Black Friday or Cyber Monday.” Examples of some retailers include Target, Apple, Best Buy and more.
Introduced last October, Hopper reports that the Mall is a member favorite for Navy Federal Members because of the safety and ease of use. “We have a zero liability policy on our credit cards so if a purchase appears on the member’s statement that he or she didn’t make, we remove it.”
Patel adds that shopping through secure, reputable sites and merchants is a good idea as well as being sure the consumer understands the value proposition of all the credit cards in his or her wallet (rewards, pricing, etc.). “So that you can utilize and optimize unique product benefits while you shop. For instance, if a card is offering you triple points on electronics, you should be sure to use that card for your electronic purchases.”
Ready to shop today and throughout the holiday season? Find a credit union and inquire about credit card programs that will meet your needs.