The Government has today announced it is investing up to £38m in credit unions, which are community co-operatives. Lord Freud (right), Minister for Welfare Reform, explains why he wants them to be a mainstream option for savings, current accounts and loans.
Credit unions are too often forgotten, but they offer people a real alternative and often have some of the best deals on the market.
It is a surprising fact that credit unions offer the most competitive interest rates in the UK on personal loans of up to £3,000.
People who take loans from credit unions save, on average, £401 a year. Those in the lowest income group could save as much as £1,000 a year by using a credit union to access banking services.
Members sing the praises of the 400 UK credit unions and for a good reason. Credit unions serve their communities and help hundreds of thousands of people to save and borrow.
They really help people with small loans that can make an enormous difference to lives, as well as helping thousands to save so rainy days don't become crises.
Keeping the sharks away
Importantly, people borrowing with credit unions are not turning to doorstep lenders, payday loan merchants and illegal loan sharks – where people face outrageous four-digit interest rates and short-term loans that roll over into long-term crippling debts.
I want credit unions to be a mainstream alternative to the banks – so they can offer current accounts, savings, Isas and loans. That is why we are investing up to £38 million to make that a reality, following £13m last year.
With this investment, credit unions will be able to modernise and start to reach out to one million more members.
Credit unions are too often seen as a 'poor man's bank' and half of credit unions say this image is holding them back. However, if you walk into some of the credit unions today, you cannot tell the difference between them and a modern high street bank.
Professional staff from the community are there to advise members of the public – and they really make a difference.
Credit unions can also step in to help the high numbers of people who are financially excluded and it is shocking how many people are affected.
Millions use them
Up to seven million people regularly use sources of high cost credit, four million regularly face bank charges and 1.4 million have no current account.
Without a current account, people end up spending more for everyday goods and services. Direct debit energy discounts are out of reach for those locked out of high street banking, along with many of the online discounts that many of us now just take for granted.
Next year we are introducing a new benefit, universal credit, which brings together the main out-of-work benefits in a single payment. As we prepare people for this change, we are working with councils, credit unions and housing associations to prepare people to get online and have the right financial and budgeting skills.
This is part of my determination to tackle social, digital and financial exclusion. Without being online or having a bank account, it is nigh on impossible to take part in 21st century life in Britain. Credit unions have a clear role in stopping this exclusion.
Credit unions provide excellent service to communities and excellent value for their members.
With our investment, I expect them to grow and become a cornerstone of high street finances, giving more people the excellent value and service that a minority already enjoy.
Views expressed do not necessarily reflect those of MoneySavingExpert.com.