If you're in the market for a new credit card then there will be a number of features and benefits you'll be looking for.
Low rates of interest, low annual fees, the longest possible interest free period on purchases, fair charges, and the possibility of a promotional balance transfer deal are just some of them.
These are generally the things most credit card customers most desire from a new card, and are the features that banks tend to promote the most. But are the banks always the right option when it comes to choosing a credit card provider?
It may surprise some of you to know that not only do building societies also offer credit card products, but that they can often be much better value than any card offered by the main High Street banks. Let's find out more.
How Do Building Societies Work?
Building societies offer many, (if not all) of the same products that the banks do. You'll find bank accounts, savings accounts, home loans, personal loans, deposit accounts and credit cards all available from both societies and banks. So what's the difference between the two?
The major difference between banks and building societies is that building societies are mutual organisations. This means they are not normally limited companies, and are owned by their customers, or members as they prefer to call them.
What does this mean to you the customer?
It generally means better value for money. The reason is that unlike banks, building societies aren't under pressure to increase profits for the benefit of the company's shareholders. Like all commercial businesses banks are there to make as much money as possible for those at the higher level of the company. Any profits made by a bank will be split between reinvestment in the business, and the company's shareholders.
A building society will instead use all of its profits to reinvest in itself, meaning better rates and offers for members. It also means that as a member of a building society you have a say in the running of the business, and get to vote on all matters of importance as they arise.
Do They Differ To Credit Unions?
If you've ever investigated the alternatives to banks you'll have probably come across credit unions as well as building societies. The question most people want to know the answer to is, "What is the difference between a society and a credit union?"
Credit unions and building societies have a great deal in common. Both are mutual organisations, owned by members instead of shareholders, and most offer the exact same range of products as the banks.
The only major difference between building societies and credit unions are the way they're set up. Building societies have now grown to a size where they're big national companies that are used by members all around the country.
Credit unions on the other-hand tend to be more regional in their nature, or are there for a group of people with a particular interest. For example there is a credit union for people from the education field, whilst another popular union only accepts members from a certain part of the country. In effect, credit unions are even more community orientated than building societies.
Are Building Societies Safe?
Your finances are important to you, and it makes sense for you to want total peace of mind that your money is in a safe place, and that your financial affairs are in safe hands. Building societies can provide you that peace of mind for a couple of reasons.
The first is that building societies are subject to the exact same regulations and rules as all other banks and financial institutions. They are fully regulated by the major financial authorities so you can be assured your interests are being looked after.
The second reason you can bank safely with a building society is because they tend to be much more conservative in the lending and borrowing strategy. They have no real exposure to the sub-prime loans that cause financial meltdown around the world, and they also boast the lowest levels of customer arrears in the Australian market.
This is because they make certain that all members only borrow what they can safely afford to repay.
So Why Should You Get Your Next Credit Card From A Building Society?
Building societies offer low rates, fair fees, and lend responsibly. In fact you'll often find that the lenders that are voted "Best Value" by independent surveys will be building societies. In addition, a 2008 survey conducted by ASIC showed that generally building societies charge the lowest overall fees in the home lending market.
Because of this, the main reason you should look at a building society for your next credit card is because you could potentially save hundreds in interest and fees. What you do need to remember is that like the banks, building societies are responsible for setting their own prices and offers so you still need to shop around when choosing a card.
What Should You Be Looking For?
When choosing a new credit card you need to compare the exact same features and benefits as you would when looking at bank provided cards. The most important things to look at are:
Promotional rate of interest- Many credit card providers will entice you with a low promotional rate of interest. This rate will normally apply when you transfer an existing credit card debt to your new lender, and will only be a temporary feature. After this promotional period your interest rate will revert to the providers standard variable rate.
Interest rate- What is the standard rate of interest you'll have to pay on any unpaid balance at the end of every month? Of course as always, the lower this figure the more money you save.
Annual fee- Many credit cards require you to pay a yearly charge towards the upkeep and maintenance of your account. This charge is known as the credit card's annual fee. The size of the fee you pay will normally be reflected in the amount of features that come with the card.
Standard credit cards will normally charge a lower annual fee than a Platinum reward card with a very high credit limit and tons of free extras. Keep an eye out for "No annual fee" cards as these can also save you a great deal of money each year.
Interest free days- How many days interest free do you receive on purchases? The longer the interest free period, the longer you have to pay for your purchases. Great if you like to shop now and pay later!
Reward scheme- Is there a reward scheme linked to your card? If there is make sure the annual fee is not too high, and ensure you will use the card enough to make having a reward program worthwhile. There's no point having a credit card that rewards you for spending money if you only ever use it in an emergency.
Be sure you look at all the features and benefits of a credit card before you make a final decision about your new provider. Hopefully you now have a clearer understanding of how building societies work, and why they may just be your ideal choice of credit card lender.