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Credit Unions

Local community savings & loans

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Helen S

Updated July 2018

A credit union is a community savings and loans provider but isn'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.

What is a credit union?

A credit union is a community savings & loans provider

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.

In June last year, there were about 305 credit unions in England, Scotland and Wales, with almost 1.3m members.

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.

Quick question

Aren't credit unions just for people who are struggling financially?

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.

Quick question

What products do credit unions offer?

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.

Quick question

What types of common bonds are there?

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: The Association of British Credit Unions Limited (ABCUL) has a 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.

Quick question

I can't find a credit union near me. Where else can I look?

Can’t find a credit union that fits?

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

Quick question

How do credit unions safeguard your money?

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.

Quick question

What is the interest rate?

How long can I borrow for?

Do I need to save with the credit union before borrowing?

What if I want to repay the loan early?

What's this about free life cover with the loan?

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.

Savings accounts

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, though they fall under the personal savings allowance, so you may not need to pay any tax. If you do, your credit union should be able to help you with the paperwork.

Quick question

Do dividend payments ever pay more than high-street banks?

Fixed savings

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 there are some decent rates out there if you search.

Quick question

What fixed savings accounts are available?

Cash ISAs

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 £20,000). For more information on ISAs, read the Cash ISA guide.

Quick question

Are there any credit union ISA that beat the high street?

How do I pay in and withdraw money?

Do I get any other benefits?

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. In any case, many credit unions limit the total you can save with them to £10,000 or £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.

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.

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