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Credit Unions
Local community savings & loans
Credit unions offer an alternative to traditional banks and building societies for saving and borrowing. They can sometimes beat the rates on the high street. We explain how to find a credit union, how they keep your money safe, and when you should use them.
What is a credit union?
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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.
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Credit unions are for everyone
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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
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Credit unions offer savings and loans. But some offer current accounts and even mortgages
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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 a credit union, you’re helping others in the 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.
Similarly, if you have a good credit score, it's worth checking out the best buys in the cheap loans guide. Rates are at historic lows, so check if the high street can help you out in our Cheap Loans guides or use our loan calculator.
Quick question
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You'll usually only qualify to join one or two unions... though you may not be eligible for any
Generally, to become part of a credit union, you need to share a ‘common bond’ with other members - whether living in a particular area or being in a certain profession. Once you’re a member, you can become involved in decision-making by attending AGMs or other member meetings. Some of the smaller credit unions 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
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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 0161 832 3694.
Quick questions
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Credit unions are not-for-profit - and your money's safe...
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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
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
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Saving with a credit union
Generally, you can save large or small amounts weekly, monthly or whenever you have spare cash.
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.
Quick question
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
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 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.
For more info, see the Are my Savings Safe? guide.
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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 can be as little as £1.50 a week or up to around £5. 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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