By Helen S Updated August 2015
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.
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 Ј3,000. 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.
Transport Credit Union:
Major transport companies such as First Group and Virgin Trains. Transport 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.
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.
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.
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 Ј50 to Ј3,000, 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 Ј100 over a year, at most you’ll repay Ј143(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.Source: www.moneysavingexpert.com