We’ve received a couple questions at NerdWallet about credit unions and rewards credit cards. Generally, the perception is that while credit unions are great for low interest rates and fees, the major banks have the profit margins to spend on a great rewards program. But now, people are getting disillusioned with big banks, and want to switch their loans, not just savings, to credit unions. Well, thankfully, you can have your cake and eat it too.
Credit union rewards cards that outperform banks’
As clear proof that credit unions can deliver good rewards cards, here are three cards available to anyone that are better than similar cards offered by big banks. This is by no means an exhaustive list, merely a demonstration that credit unions aren’t lightweights in the rewards card arena. To learn more about specific credit unions, the National Association of Federal Credit Unions’ CULookup.com is an excellent comparison tool, helping you determine your eligibility based on both employer and location.
PenFed Premium Travel Rewards vs. the AmEx Platinum
The Pentagon Federal Premium Travel Rewards card is often compared to the American Express Platinum, because it’s aimed at travelers who like to fly in style. You could make the argument that the Platinum gives better side benefits than the PenFed, but you earn so much more in rewards and save so much more in fees that it’s easily a wash. Plus, the PenFed Travel Rewards is actually a credit card, so you can carry or transfer a balance. The AmEx Platinum is a charge card, intended to be paid off every month. Here’s how they stack up:
|PenFed Travel Rewards||American Express Platinum|
|No annual fee||$450 annual fee|
|5x rewards on airfare||2x points when you book travel through AmEx|
|25k-point signup bonus Spend $1,000 in 3 months||20k-point signup bonus Spend $650 in 3 months|
|2 Priority Pass entries per year with $15k annual spending (valued at $150/yr)||Priority Pass membership (valued at $400/yr)|
|No airline credit||$200 airline incidentals credit|
|Concierge service, travel protections|
Taking the value of the fringe benefits minus the annual fee, the PenFed and the Platinum are tied with a $150 net value. But that’s not including the travel bonus. You only get double points with the Platinum if you leave your booking to the dubious care of AmEx travel reps, but the PenFed card gives you a whopping 5x points on all airfare purchases. Done and done.
(Disclosure: the PenFed Travel Rewards is a sponsored credit card of ours, but if you apply through the link above, we don’t receive anything, not even a thank-you note.)
Eligibility: Those associated with the armed forces or Department of Defense and their relatives are automatically eligible. Otherwise, you can make a one-time $15-$20 donation to Voices for America’s Troops, the National Military Family Association, or the Red Cross (you can also qualify by donating blood).
Lake Michigan Max Rewards Visa vs. Bank Americard Cash Rewards
BofA is the villain you love to hate, but the Bank Americard deserves your pity, not your scorn. Both cards privilege everyday purchases – gas and groceries. But where BofA has pretty restrictive caps and a high APR, the Max Rewards Visa has a lot more flexibility.
|Lake Michigan Max Rewards Visa||Bank Americard Cash Rewards|
|3% back on gas (up to $500/mo) 2% back on groceries (unlimited) 1% back elsewhere (unlimited)||3% back on gas and 2% back on groceries, up to a combined $1,500/quarter 1% back elsewhere (unlimited)|
|No signup bonus||$50 signup bonus|
|No annual fee||No annual fee|
|No intro rate||0% APR on purchases for 12 months|
|6.25% – 18% APR||12.99%-20.99% APR|
|0% balance transfer fee||4% balance transfer fee|
|3% cash advance fee||4%-5% cash advance fee|
|No penalty APR||29.99% penalty APR|
The thing to note about the Bank Americard is that both groceries and gas purchases go towards the $1,500 per quarter spending cap. So if you max out on both cards, you’ll earn $45 in gas rewards per quarter with the LMCU Visa, plus whatever you get back from groceries and other spending. However, if you max out with the BofA card, you can get at most $45 in bonus rewards, inclusive of both gas and groceries. If you spend $900 on groceries and $600 on gas, you only get $36. And if you spend on gas/groceries beyond that, you’re SOL. The one downside is that the Bank Americard has a $50 signup bonus, while the LMCU card has none. On the other hand, LMCU offers a checking account with a 3% yield (which I use), significantly better than BofA’s savings accounts.
NASA Federal Platinum Cash Rewards vs. Discover Miles
The Discover Miles is supposed to be one of the issuer’s better offerings, but the NASA Cash Rewards is astronomically (get it?) better. The Miles earns double rewards on travel and dining, but only up to $3,000 in purchases per year. The NASA Cash Rewards earns 1% on the first $1k spent, 1.25% on the second $1k, and 2% thereafter. Stay tuned for the math behind the cards!
|NASA FCU Platinum Cash Rewards||Discover Miles|
|1% back on first $1,000 spent annually 1.25% back on $1,001-$2,000 2% back on $2,001+||2% back on first $3,000 in travel and dining 1% back elsewhere and above $3k|
|No signup bonus||12,000-mile signup bonus|
|No annual fee||No annual fee|
|0% balance transfer fee||3% balance transfer fee|
|3% cash advance fee||5% cash advance fee|
So which one is the better choice? Let’s give the Discover Miles a big handicap: we’ll assume the first $3,000 you spend a year goes to travel and dining. After $3k in spending, you’ve earned $17.50 more in rewards with the Miles than with the NASA card. Spend a mere $1,750 more, and you’ve broken even. If you spend more than $400 a month, you’ll earn more with the NASA card than you would with the Miles.
But what about the signup bonus? Glad you asked. The Miles pays you 1,000 miles a month for the first year, so you get an extra $10 back a month for the first year. Factoring that in, if you spend more than $900 a month, you’ll wipe out the bonus with room to spare in a year, and it’s all upside from there. Given that the average household puts about $1,000 on its credit card a month, and given that you have the entire lifetime of the card to make up for the signup bonus, the NASA card still comes out ahead.
Do good and do well
There are other reasons to join credit unions, of course, than the cards’ terms. Credit unions are not-for-profit, so members receive dividends in the form of lower interest rates and higher yields. They’re also member-owned, and in such a way that each member gets one vote, no matter how much they have in their account. A publicly traded bank, on the other hand, has preferred stockholders that make the decisions, and is accountable to its shareholders rather than its customers. Federally chartered credit unions cannot charge more than 18% interest; low-income credit unions have a mission to serve the underserved.
But you probably know all this. Ever since Bank of America’s debit card kerfluffle, credit unions have surged into prominence as hundreds of thousands of people transferred their deposit accounts. What doesn’t often get told is that additional deposits can hurt an institution if it doesn’t have an influx of loans as well. Financial institutions stay afloat by “borrowing” money from its checking account customers and lending it out in the form of credit card loans, mortgages, and so on. Credit unions try to lend out their funds, rather than sit on them like banks are doing right now. However, this means that CUs are always hovering close to their capitalization requirements, and a large amount of extra deposits can upset a delicate balance. By moving your credit cards, not just your debit cards, to credit unions, you’re helping them continue their work in the community.
What work is that, you ask? Credit unions offer financial literacy programs, and if someone doesn’t qualify for a loan upfront, they will often work with that person to establish a solid credit history rather than rejecting them outright. And credit unions shine when it comes to small business lending: while large banks approve 10% of small business loans, credit unions approve 62%. The Federal Reserve is keeping interest rates at insanely low levels in an attempt to stimulate lending, but while major banks aren’t budging, credit unions are out there reinvesting in the community.
One last disclosure: The Lake Michigan, Bank of America and NASA FCU cards are not sponsored, so we have no financial stake in you applying for them. We do have partnerships with American Express and Discover, but since we spent a couple hundred words each comparing them unfavorably to credit union cards, we hope this won’t seem to be a conflict of interest.
Use our credit union finder to locate better deals in your neighborhood!