New credit union service launched for the Armed Forces

The arrangement, backed by the Ministry of Defence, means Armed Forces personnel will be able to save regularly or repay loans with credit unions directly through their pay packets, via deductions from their payroll.

Family members and retired personnel receiving a pension are also eligible to join the new service, whose launch coincides with International Credit Union Day.

Credit unions are mutual financial co-operatives that take deposits and give loans to members. See MoneySavingExpert.com's Credit Unions guide for more information on how they work and what they offer.

Credit unions trade association Abcul (the Association of British Credit Unions Limited) says that over the years, people serving in the Armed Forces have reported difficulties accessing credit because their job involves moving regularly and it can be challenging to build up a good credit rating. It adds that some personnel report being targeted by high-cost lenders.

What are the credit unions offering?

The credit unions selected to offer the service are Plane Saver Credit Union, Police Credit Union and London Mutual Credit Union. A new website – Joining Forces – has been launched with details of the services being offered.

Abcul says the loans being offered under the scheme will have rates starting at 4.5% APR. See MoneySavingExpert.com's Cheap Personal Loans guide, which includes our eligibility checker, to see if you could get a cheaper loan elsewhere. You can currently get a loan for as little as 3.4% a year.

Meanwhile, the annual dividend returns on offer on savings has been as high as 3% in recent years among the credit unions involved in the new scheme.

Credit union savings usually offer a dividend rate rather than an interest rate. This means how much you get depends on how well the credit union does that year – so you don't know what you'll earn until the end of the year.

See MoneySavingExpert.com's Top Savings guide for alternatives – you can currently earn up to 1.61% in an easy-access savings account, and up to 5% in an interest-paying current account.

Additional reporting by Helen Knapman.