Credit unions aren't just an oasis for those struggling to qualify for high street borrowing. As community co-operatives, they can also appeal to those who want to benefit their neighbours.
And while savings rates are so low, they can sometimes beat high street rates. This guide tells you how to find a credit union near you, how safe they are and when to use one.
In this guide...
What are credit unions?
Credit unions are community savings & loans providers
Traditionally, credit unions have been small, non-profit financial organisations set up by members with something in common to benefit their community. That common factor may be living in the same town, working in the same industry (eg, the Police Credit Union) or belonging to a particular trade union.
Many credit unions are professionalising, having moved away from the man and his ledger in the church hall collecting savings and offering loans. Many now offer products online, and most have some form of commercial premises.
There are now about 500 credit unions in the UK, and about a million Brits are members - this number's increasing every day.
Credit unions are for everyone
They’re there to provide a financial community. The idea is that members mutually benefit as there’s no profit for third-party shareholders.
This can often mean helping those who can’t get access to ordinary bank products; a lifeline in less well-off communities for folks grappling with their finances. Plus, they can be a welcome alternative to payday loans or doorstep lending.
Aren't credit unions just for people who are struggling financially?
No - credit unions are for everyone. One of the main objectives of a credit union is: "The training and education of the members in the wise use of money and in the management of their financial affairs."
While not all are able to provide a structured programme about budgeting or debt management, all are involved in helping to improve the financial literacy of their members (we're proud the MSE Charity is able to help fund some of these projects).
Projects which may be available include budgeting accounts, where you pay in a fixed amount each week or month to pay agreed household bills on your behalf. Or it can be 'benefits direct accounts', where your benefits are paid directly to the credit union and you can withdraw cash needed for day-to-day spending.
Credit unions offer savings and loans. But some offer current accounts and even mortgages
Most credit unions don’t offer table-topping rates for larger loans or savings - but some do, so it's always worth checking. And by putting money in there, you’re helping others in your community too.
If you’re after top-paying savings, first compare what the credit union's offering to the accounts in the Top Savings guide. Unless you're very community-minded, you'll want some return on your cash. Similarly, if you have a good credit score, it's worth checking out the best buys in the cheap loans guide. The market-leading rates are at historic lows, so check if the high street can help you out in our Cheap Loans guides.
What products do credit unions offer?
Most credit unions come into their own for loans of smaller amounts, under £3,000. Many people who borrow these amounts would otherwise only be able to resort to doorstep lending or payday loans as an alternative. Compared to those, credit unions have halos. See the loans section below for more info.
You can also use the loan to buy white goods via Co-operative Electrical - this scheme's offered through more than 100 credit unions, so ask yours if it participates. Another way to buy electricals is via the Smarterbuys scheme. This is a collective buying project that allows you to pay for goods via a credit union loan as a way to avoid payday loans, weekly payment stores or loan sharks.
All unions offer some form of savings account. The difference between these and high street accounts is that credit union savings often pay you a dividend, which is dependent on how well the credit union's done that year, rather than a confirmed interest rate. See the savings section below for more information.
About 25 credit unions now offer current accounts, usually in partnership with Co-op Bank.
These are only offered by a few credit unions, Glasgow, Scotwest & Capital Credit Unions (all in Scotland) and No 1 Copperpot Credit Union (for police staff). However, never pick a mortgage without looking at the whole market. See Cheap Mortgage Finding for how to locate the best deal.
Around 40 unions around the UK offer a prepaid card service. See the Prepaid Cards guide for how the cards work.
You'll usually only qualify to join one or two unions... though you may not be eligible for any
They’re all specific, so you need to check if there’s one that suits you in your area, or one for people in your profession.
Generally, to be part of a credit union, you need to share a ‘common bond’ with other members. Once you’re a member, you can become involved in decision-making by attending AGMs or other member meetings. Some of the smaller ones may also be looking for help to run it.
You can also usually stay in the union if you're not in the bond anymore, for example if you move house or job, although smaller unions may not have the resources to be able to deal with this. Organisations, as well as individuals, can now join credit unions too.
What types of common bonds are there?
There's a few different things that can form the common bond for a credit union. Some of these include...
London Mutual Credit Union:
For those who live or work in the boroughs of Camden, Lambeth, Southwark & Westminster. London Mutual Credit Union
Leeds City Credit Union:
Open to anyone who lives or works in the Leeds metropolitan area. Leeds City Credit Union
Open to anyone who lives or works in Kent. Kent Savers
Glasgow Credit Union:
For those who live or work within Glasgow or the G postcode area. Glasgow Credit Union
Transport Credit Union:
Major transport companies such as First Group and Virgin Trains. Transport Credit UnionNHS Credit Union:
For those who work for the NHS, or family members who live in the same household, in Scotland or the north of England (north east, north west and Yorkshire & Humberside). NHS Credit Union
My Community Bank:
For those who live in the London Borough of Brent and for those who are members of associations concerned with the culture, cuisine, finance or welfare of the South Asian community in the UK. My Community Bank
It's easy to find if you're eligible to join one
There are a number ways to find a credit union near you and check out precisely what your local credit union offers: Use ABCUL's Find Your Credit Union website, which does exactly what it says on the tin. You can search by postcode, employment type, or other organisations that you think may have a union. If you'd prefer, you can call ABCUL on 0800 015 3060.
I can't find a credit union near me. Where else can I look?
Other online tools include the ACE Credit Union Services, Scottish League of Credit Unions, creditunion.ie (Republic of Ireland-based, but covers Northern Ireland), and Northern Money (which covers Northumberland, Tyne & Wear, Durham, Tees Valley and Cumbria) databases.
As an alternative to a credit union, you may find a Community Development Finance Institution is able to help you with a small loan.
Can’t find a credit union that fits?
If you feel like dedicating time and effort, then you can always set up your own credit union. It won't be quick, it usually takes up to three years and there are strict procedures to follow.
See the ABCUL guidance for more info.
Credit unions are not-for-profit - and your money's safe...
Credit unions aim to help you take control of your money by encouraging you to save what you can, and borrow only what you can afford to repay. In essence, they're savings and loan co-operatives, where the members pool their savings to lend to one another and help to run the credit union.
This is done in a ‘not-for-profit’ way, so the cash is only used to run the services and reward the members, and NOT to pay outside shareholders, like most other financial institutions
How do credit unions safeguard your money?
Throughout the year, those running credit unions must put aside enough money to ensure they don’t go bust. Any money that’s left over is channelled back to those who’ve got a savings account (to pay them interest) or it’s used to try to improve the overall service.
To keep all the money safe, credit unions can’t lend out all their members’ savings or plough the remainder into anything that carries too much risk. All money in savings with credit unions has the same FSCS Government protection as bank savings accounts. For more information on this protection, see Are Your Savings Safe?
Borrowing from a credit union
A key appeal of credit unions is a willingness to make small loans of £50 to £3,000, which most high-street banks won’t do. They're a much cheaper alternative to payday loans, and some credit unions can even get cash to you the same day.
In the old days, a credit union kept a strict rule that it would only lend to those who already had savings but this is changing; some will now lend to those who are new to the organisation.
What is the interest rate?
This is a bit of a “how long is a piece of string?” question. Sometimes loans can be under 6% a year, but the interest is often around 12.7% APR (1% a month) going up to a maximum 42.6% APR (3% a month). If you borrow £100 over a year, at most you’ll repay £143(ish).
These rates are higher than the cheapest credit cards or loans. But they're MASSIVELY cheaper than the products offered to those who are usually turned down for loans from high street banks, when rates can run into the hundreds or even thousands of percent.
What are the monthly repayments on a one-year loan?
|Amount borrowed||Typical (APR 12.7%)||Maximum (APR 42.6%)|
How long can I borrow for?
The vast majority of credit unions will give you money for a personal loan for up to five years and up to 10 years for a loan secured on your property (meaning if you can’t repay, it has a claim on your home).
Some credit unions have also started to offer payday-style loans, meaning you can take £100-500 over a month, or a few months. But the big difference is that while the payday lender has a representative APR of 1,000%+, the credit union's maximum APR is 42.6%.
Do I need to save with the credit union before borrowing?
Like a regular bank, much also depends on YOU. You could find that some credit unions will insist you regularly save for several months first, to ensure you remain committed, or make checks to be sure you have enough to be able to pay all your other bills as well repay a credit union loan.
What if I want to repay the loan early?
Credit union loans usually carry NO hidden charges or penalties if you can pay off the loan early (unlike high street loans, where you could pay a charge).
What's this about free life cover with the loan?
Life cover's also included in the loan at no extra cost. So if you die before paying off the loan, the credit union's insurer would repay the loan for you. It'd mean one less thing for your estate to deal with in a difficult time.
Saving with a credit union
These tend to be ultra-flexible, allowing you to save large or small amounts weekly, monthly or whenever you can.
Bigger credit unions may have online banking meaning you can pay in online, and have branches and collection points such as local post offices; some smaller unions will have just a couple of opening hours a week and likely be based in a community centre or church hall.
Credit union savings usually offer a dividend rate rather than an interest rate. This means that it depends how well the credit union does that year - so you don't know what you'll get until the end of the year. Typically, dividend rates are 1-3%, but it could be as low as 0% or as high as 8% of the sum saved.
Dividends are paid before tax, so it's up to you to declare tax on any earnings, although your credit union should be able to help you with the paperwork.
Do dividend payments ever pay more than high-street banks?
Some recent dividend rates that beat high street savings include:
Glasgow Credit Union
For those who live or work in the G postcode area. In 2014, dividend levels were 1.5% on its savings products. You must commit to saving at least £10 per month to join. Glasgow Credit Union
Somerset Savings & Loans
For those who live or work in Somerset (in certain postcode areas). Offered 1.5% dividend on its savings account last year. Membership of the union costs £2.50 and minimum deposit is £7.50. Somerset Savings & Loans
Check your local credit union
Use ABCUL's Find Your Credit Union website to find your local union and what it's offering for its savings accounts.
Some credit unions, usually the larger ones with thousands of members, now offer accounts with advertised interest rates, like bank savings accounts. You can identify these as they'll have a rate, and it'll say "AER" (Annual Equivalent Rate) after it.
Most credit union savings accounts aren't table-topping, but My Community Bank credit union, which is nationwide, has launched two fixed-rate bonds (two year and three year bonds) which beat or equal high street top savings rates.
What fixed savings accounts are available?
Savings accounts offered include:
Two-year bond - 2.25% AER
(minimum deposit £1,000, max deposit £15,000) - My Community Bank Two-Year Bond
Three-year bond - 2.75% AER
(minimum deposit £5,000, max deposit £15,000) - My Community Bank Three-Year Bond
To join My Community Bank, you either need to live in the London Borough of Brent, or to support the South Asian community in the UK (that's wider than you think...)
Am I eligible to join My Community Bank?
It's My Community Bank's second bond (supporting the South Asian community in the UK) that allows it to be nationwide. It's open to all who are members of associations concerned with the culture, cuisine, finance or welfare of the South Asian community in the UK.
This common bond can be displayed by being a member of a curry club, for example, or by donating to a charity helping the South Asian community in the UK. The common bond will be reinforced once you've joined as My Community Bank donates on its members' behalf to the British Asian Trust.
Other high street-beating credit union accounts
If you live in Somerset, you can benefit from a bond that targets a 3% return (though this is a dividend so it isn't guaranteed):
Member's Bonus Bond - 3% targeted dividend
You need to deposit a minimum of £2,000 to open this account (max deposit £15,000). The account has a one year fixed term. Somerset Savings & Loan Member's Bonus Bond
Find what your local union's offering:
Use ABCUL's Find Your Credit Union website to find your local union.
Some credit unions now offer cash ISAs as part of their savings range. A cash ISA is a savings account you don't pay tax on, but there's a limit to how much you can save each year (currently £15,240). For more information on ISAs, read the Cash ISA guide.
Are there any credit union ISA that beat the high street?
Some credit unions offer cash ISA accounts which beat anything offered on the high street. A selection of those unions is below, but check your local union for what it offers:
Police Credit Union
For those who work in the police, or in law enforcement, and their families. The cash ISA is a dividend account and is projected to offer 1.6%. Police Credit Union
Voyager Alliance Credit Union
For those who work for the transport industry in England, Scotland or Wales (and their families). Offers a projected 1.5% on its cash ISA. Voyager Alliance Credit Union
Can't join these credit unions?
Use ABCUL's Find Your Credit Union website to find a credit union you can join.
How do I pay in and withdraw money?
You can pay in at the local credit union office, or sometimes through a post office. Some accept BACS or debit card payments. If you're with one of the employment-linked unions, you're often allowed to save direct from your payroll, which makes the process much easier.
Withdrawals can be made directly at your local credit union office, by cashing a cheque at a post office, or, with some of the larger unions, with a debit card from an ordinary high street cash machine. The larger credit unions now allow online withdrawals to a specified account.
Do I get any other benefits?
Life savings insurance is included with most savings accounts, at no extra cost. If you die your savings can be as much as doubled by the insurance and paid to whoever you choose. Further details on this are available from the individual credit unions.
Are my savings safe in a credit union?
Credit unions are small organisations and lack the enormous resources of the big banks. On the other hand, regulations mean they must be far more prudent and not over-lend.
As with any type of savings, the most important thing to consider is “in the event the credit union went bust, is my cash protected?”. The answer is yes.
Credit union savings have exactly the same protection as normal savings accounts; in other words, the Financial Services Compensation Scheme will pay back £85,000 per person, per institution (falling to £75,000 on 1 January 2016). In any case, many credit unions limit the total you can save with them to £15,000.
Do credit unions do other products?
If your union provides a bank account facility, it operates very much like a Basic Bank Account. Credit unions' current accounts are mostly provided by the Co-operative Bank.
Most credit unions will charge you for the account - this is to cover costs, as they are not-for-profit entities. The charge should be no more than £1.50 a week. The charge also means you don't pay fees for paying late or making an error. Otherwise, credit union bank accounts generally operate like any other bank account.
You can have your salary paid in, set up direct debits and standing orders from the accounts, take money out at cash machines, and some will issue debit cards so you can use them in shops.
However, you won't get an overdraft or a chequebook, so if this is what you need, you're better off looking on the high street. The other thing you won't get from a credit union bank account is the seven-day switching guarantee that high street banks offer. This is a voluntary standard and credit unions aren't signed up to it.
You can still switch your bank account to a credit union - it's just likely to take up to a month to complete the switch.