Credit Union’s New Card Goes All-In With 3X Points

» This offer expires Feb. 1, 2021

Beginning Feb. 1, 2021, the rewards rate for this card will decrease to 1 point per dollar spent, down from the previous rate of 3 points per dollar.

It happened quietly, but it’s a big deal: In early February, a credit union launched a no-annual-fee credit card that earns an unlimited three points per dollar spent on all purchases — effectively 3% back, since points can be redeemed for 1 cent each. In the world of credit card rewards, that offer is head-and-shoulders above other ongoing rates.

It comes from Tropical Financial Credit Union, which serves South Florida. One major downside: The Mastercard Elite 3X Rewards Card is an option only for those who are eligible to become members of the credit union — generally, people who live or work in certain Florida counties or are related to members.

Even so, its launch indicates that the fierce competition in credit card rewards isn’t over — and credit unions are getting into the fight.

‘We were getting tired of getting beat up’

Previously, like many credit unions, Tropical Financial Credit Union’s credit cards featured low interest rates and few rewards. That made it challenging to compete with richer offers from major issuers.

“We were getting tired of getting beat up,” says Amy McGraw, vice president of marketing and chief experience officer at Tropical Financial Credit Union. “We thought, ‘Doggone it, we’re a credit union. We can do better!’”

After the credit union conducted focus groups primarily with people ages 25 to 35 living in southeast Florida, it became clear that credit card rewards were in high demand.

"That’s kind of a generation we’re trying to target and lure into the credit union,” McGraw says. The research also showed that while most in that demographic paid their cards off in full every month, those who did carry balances on their credit cards were also generally paying more than 17.99% in interest, which is the highest APR the credit union is allowed to charge. Tropical Financial realized that offering a card with rich rewards and that APR could appeal to both groups and work out financially for the credit union.

The result was the Mastercard Elite 3X Rewards Card, which offers 3 points per dollar spent on all purchases, with no annual fee and a fixed APR of 17.99%.

Taking on the big banks

Traditionally, major credit card issuers have offered the richest rewards credit cards. But in recent years, some credit unions have challenged that status quo:

• In 2017, Alliant Credit Union launched the Alliant Cashback Visa® Signature Credit Card, a cash-back card that earned an unlimited 2.5%, with 3% in the first year and a $59 annual fee. (These terms have since changed.)

• In 2018, Pentagon Federal Credit Union launched the PenFed Pathfinder Rewards Card, a no-annual-fee card with premium travel perks, earning 3 points per $1 spent on travel purchases and 1.5 points per $1 spent on all other purchases.

• In 2019, Navy Federal Credit Union upgraded its Navy Federal Credit Union® More Rewards American Express® Credit Card, a $0-annual fee card, expanding its bonus categories to include 3 points per dollar spent on gas stations, supermarkets, restaurants and transit.

As not-for-profit organizations, credit unions have at least one advantage over banks: Their main goal is serving members, not maximizing profits. That frees them up to push the envelope on what’s possible in credit card rewards without focusing on making the most money.

But there are challenges, too. Credit unions are limited in the interest rates they can charge, which can make it harder to sustain a high rewards rate for a credit card. They’re also much smaller than major issuers and have more limited budgets. Tropical Financial Credit Union has roughly 65,600 members. In contrast, Bank of America® serves about 66 million consumer and small-business clients.

To strike a balance, issuers sometimes adjust offers. In 2019, the annual fee for the Alliant Cashback Visa® Signature Credit Card rose to $99 (now waived in the first year). In 2020, the bonus was eliminated and rewards were capped.

A card like the Mastercard Elite 3X Rewards Card would lose money if it were used mostly by people who didn’t revolve debt or pay interest, says Mike Abbott, senior managing director for banking in North America at Accenture, a firm that provides consulting services. With such a card, the issuer would earn about 2% in interchange, the swipe fees merchants pay when you use credit cards, he says.

With an effective 3% rewards rate, “it means for every purchase, the bank would lose 1% of the purchase,” Abbott says. “It is, by design, upside-down."

What’s the catch?

Unlike with some cards, points earned with the Mastercard Elite 3X Rewards Card expire five years from the end of the month in which they’re earned. The APR is fixed at 17.99% — which isn’t cheap, but lower than what major issuers generally charge on rewards cards — although if you pay in full every month, you won’t owe interest.

The card’s limited availability is also a bummer for applicants who aren’t eligible for membership. But it might be what makes this offer work.

“If it’s limited to just credit union members, and they keep a balance and don’t spend too much, then the P&L can work,” Abbott says, referring to profit and loss statements, which show revenues and costs. “If the stars align, interest income could make up for the loss on spending.”

Overall, this card offers excellent value. And that might be the whole point.

“As a financial cooperative, everything we do goes back to the benefit of the members,” McGraw says. “We don’t have stockholders we have to satisfy. We have to satisfy our members. Our CFO looked at the numbers and said, ‘We can afford to do this,’” she says. “So we did this.”