- Cooperatives that provide banking services, owned and run by members.
- All the money the bank gives out will go to the local community, so your deposits will help people in your local community.
- Main purpose to provide saving and loans.
- Some also offer current accounts.
- Competitive rates of interest. The interest that can be charged on loans is capped by law.
- Savings guaranteed to same level as at high street banks.
- There are about 580 credit unions in the UK.
- London Mutual, Bristol Credit Union and Manchester Credit Union
Credit unions have a strong regional identity and tend to be closely involved with their local communities because membership is traditionally determined by a common bond. Some credit unions serve people living or working in a particular area, while others are for members of trade or faith groups.
This means, by joining a credit union, you are putting your money in a community. It will be invested in the needs of that community – for example, it might be invested in a loan to one of your neighbours.
The main purpose of credit unions is to provide saving and borrowing services although some of the larger ones also provide current accounts, or debit cards that give access to ATM networks. Many credit unions offer internet and telephone banking.
There are about 580 credit unions in the UK. Click here to find a credit union near you.
What’s to like?
- They’re owned by members, which means you have real influence in the way they’re run. Every member has one vote.
- With no external shareholders extracting profits, credit unions can provide cheaper loans and more attractive rates for savers. In the big high-street banks, by contrast, pressure to generate dividends for shareholders leads to mis-selling of financial products to customers.
- Managers at credit unions are usually paid a standard salary, without the lavish bonuses and other rewards of their counterparts in high-street banks. The board comprises elected members, sitting voluntarily and for no salary.
- Credit unions lend out most of their savings to other members. The remainder is invested into short-term savings, often (but not always) with ethical banks. This model tends to make credit unions very stable, compared with big banks that routinely speculate with complex financial instruments.
- Saving in credit unions can be regarded as an ethical investment because money you put in allows the credit union to make loans to people in the local community who might otherwise be prey to loan sharks or high cost lenders.
- Most credit unions can provide loans of up to £15,000. The interest charged on loans is capped by law, at an APR of 26.8%. In practice, many loans are cheaper. By comparison, the leading home credit lender, Provident Financial, advertises typical APR of 272% and the leading online pay day lender, Wonga, advertises its rate at 4,000% APR. Credit unions don’t charge set up fees or early redemption fees.
- Although there are many credit unions (about 580) some parts of the country are better served than others.
- It might be difficult to join a credit union as a business. Companies, organisations and associations are allowed to join, but must not make up more than 10 per cent of the union’s membership, or account for more than 10 per cent of its loans.
- If they offer a current account, you may be charged for it – but the fees are transparent, regular and the same for everyone. By comparison, big banks offer “free” accounts that are largely paid for by poorer customers being charged for overdrafts and missed payment penalties.
Security: Credit unions offer the same guarantee as the high street banks. They are part of the Financial Services Compensation Scheme (FSCS) which guarantees 100% of the ﬁrst £85,000 of any eligible deposits for individuals and up to £170,000 to couples with a joint account. In some credit unions, life insurance is built into loans: if you die before the loan is paid off, the insurance will repay the remainder.
Move Your Money: Find your local credit union and their contact details here. Visit their website or call them up to find out what services they provide and how to become a member. In general you can join simply by filling in an application form online, in a branch or by post. In most cases you will be required to provide two forms of ID – one with a photograph (e.g. a passport), the other a proof of address (e.g. an old bank statement or utility bill). If you have any questions, call them.
Download a list of 24 credit unions that offer current accounts here.