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Credit cards from smaller banks charge much lower interest rates, CFPB says. But is it the right choice for you?


Using a credit card issued by a small bank or credit union could cost you $400 to $500 less each year than a card from a big national bank. 

That’s a finding from a new survey by the Consumer Financial Protection Bureau. Credit cards issued by small institutions such as community banks and credit unions have significantly lower annual percentage rates than the ones issued by the largest institutions, the CFPB found. 

During the first half of 2023, small banks and credit unions tended to offer cheaper interest rates than the largest 25 credit card issuers across all credit tiers. For people with a “very good” or “great” credit score of 720 and up, the median purchase APR offered by large institutions was 22.99%, while the median purchase APR offered by smaller institutions was 15.24%. For someone with a good credit score in the range of 620 to 719, the median 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. That means that an average cardholder could save up to $400 to $500 a year due to the difference in APRs from small vs. larger issuers. 

This could be a piece of helpful information for an average American today — the cost of credit cards has never been more expensive, according to the 2023 CFPB report, and credit-card delinquencies are rising, surpassing pre-pandemic levels. The Federal Reserve’s rate increases starting in 2022 led to higher interest rates for credit cards across the board. By June 2023, a total of 15 card issuers had at least one product with a maximum APR of over 30%, the CFPB found, including nine of the largest credit card companies in the country such as Ally Bank

and Capital One

There’s no question that smaller card issuers offer lower APR rates, credit card analysts said, especially given the fact that federal credit unions must cap their credit card rates at 18%. Many different factors go into determining the APRs of a credit card, including the card’s rewards program and the customer’s credit score, experts told MarketWatch. But when choosing a credit card, the APR is not the only consideration,  even though it’s more expensive than ever to use a credit card.  

While smaller issuers have lower APRs, they might not have as lucrative rewards programs, and they are also less likely to offer as long a promotion period with 0% interest, said Matt Schulz, chief credit analyst at LendingTree. Balance transfers using the 0% promotion period can be a way for people who have good credit scores to pay off their debt as soon as possible. 

Compared to the largest issuers serving a wide range of card products catering to a larger group, smaller banks usually offer fewer products, and serve a much more local demographic, experts said. 

“The right credit card is the one that fits your spending and brings you towards the goal you are working towards,” Schulz told MarketWatch. “It’s really important to focus on your goals because rates are so high, and the cost of not shopping around and not having the right card is significant.”

The bottom line is to minimize your debt on a credit card and not carry a balance month-to-month, and if you do have debt, try to pay it down as quickly as possible, said Ted Rossman, senior industry analyst at Bankrate. 

Even the lowest APR isn’t that low anymore, and carrying what’s now a relatively low rate of 12% over many months or years could be expensive, Rossman said. “Yes, 10% is better than 20% or 30%, but only better than all this is zero,” he added. 

For those who have lower credit scores, instead of opening another card with a lower APR, they could also turn to credit counseling services, Rossman added. With a low fee, non-profit credit counseling organizations could 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 top 10 card issuers covering over 80% of consumer credit card loans, which has led to higher pricing, the CFPB said in the survey. Credit card issuers disputed the CFPB’s characterization of the industry as lacking competition. 

Larger institutions were also more likely to charge higher annual fees than their smaller counterparts, the report found, with 27% of large issuers’ cards charging an annual fee compared to 9.5% of smaller firms. On average, large institutions’ annual fees were at $157 compared to $94 for smaller issuers. 

Ally Bank and Capital One did not immediately respond to requests for comment. Citi did not respond to a request for comment. A spokesperson of the American Bankers Association told MarketWatch in an email that the CFPB report was politically motivated. 

“The CFPB’s own data shows that interest rates are set in a highly competitive credit card market, which offers consumers a wide range of options to find the card that best meets their needs,” said Sarah Grano, an ABA spokesperson. For example, some consumers may want a card with a lower rate while others may prioritize rewards programs or other card features that are important to them. Americans need only look at their mail and their email inbox to know the many credit card choices they have.”

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