What is a credit union?
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. They are community savings and loans co-operatives, where members pool their savings, which are then used to make loans to other members.
Credit unions are owned and controlled by their members, and they are run in a “not for profit” way. This means they do not have to pay profits to outside shareholders. Instead the profit made by a credit union is shared evenly among savings accounts (this is called the dividend). Credit unions also reinvest some of their profit to improve the services that they give to members.
Who can join a credit union?
Each credit union has a “common bond” which determines who can join. The common bond may be for people living or working in the same area, or for people who are working for the same employer. Some credit unions are for people who belong to the same association such as a trade union or church.
As long as one member of a family meets the common bond requirements and has joined the credit union, the other family members living at the same address can usually join it to.
What services do credit unions offer?
All credit unions offer savings and loans. Most also offer free life or loan-protection insurance, and some offer other insurance products including travel, motor, home insurance and funeral plans. The larger credit unions offer extra services like:
- Christmas savings accounts
- Cash-based Child Trust Funds
- Individual Savings Accounts (ISAs)
- Budgeting accounts
- Current accounts (features may vary)
- Debt management.
Saving with a credit union
You can pay money into your account in several ways:
- Direct from your wages via payroll deduction
- By Direct Debit or standing order
- In cash at your credit union office or collection point
- You can have State benefits paid in directly into you account
- In some places you can pay in using PayPoint cards.
- You can take money out:
- By cashing a cheque at a local Post Office
- Get cash from your local credit union office
- By arranging for money to be paid directly into a bank account
- If your credit union operates a current account you can use your debit card at a cash machine.
You will normally receive a dividend on your savings, this is usually paid annually (this is a bit like receiving interest on your savings). Your savings are protected by the Financial Services Compensation Scheme (FSCS).
Borrowing from a credit union
Credit union lending methods vary. Some will lend to you as soon as you become a member. However, they will need to make sure you have enough money left after paying your bills to be able to afford to repay the loan. Others will only lend to you once you have saved with them for a set period of time.
All credit unions can lend small amounts of money for all purposes. Some credit unions can lend larger amounts over longer periods of times, for example to buy a car, or for home improvements.
When you borrow from a credit union you normally get free life insurance to cover the value of the loan, this means the loan is repaid if you die before paying it back in full.
The maximum interest on a loan from a credit union is 26.8% APR, or 2% a month on a reducing balance. Many loans will be charged at a lower rate of interest. Check with your local credit union for their interest rates.
How can I find a credit union?
You could ask your local council or your local Citizens Advice Bureaux. Alternatively, most credit unions are a member of a trade association and they will be able to tell you whether there is a credit union near you. The main trade association is ABCUL – the Association of British Credit Unions Ltd: 0161 832 3694 or www.abcul.org.
The following organisations may also be able to help:
ACE Credit Union Services
0191 244 4061
Scottish League of Credit Unions
0141 774 5020
To find out more about credit unions contact the Money Advice Service - www.moneyadviceservice.org.uk