Credit unions – we bet you’ve heard of them, but do you really know what they are and how they can help you? If not, read on to find out.
What are credit unions?
They’re a bit like a co-operative or a mutual in that the money that’s in the union has been deposited by the members. In order to use the services of a credit union, you need to become a member and, once you have, you’ll have as much say in what happens to the money as anyone. They are democratic self-help organisations that are set up to help people from a certain area or industry. This is what’s called a ‘common bond’ and to join a credit union, you’ll need to meet the common bond criteria set by the union you’d like to be part of.
Being part of a credit union can also give you access to cheaper goods, such as buying electrical items though Co-operative Electrical, which is currently offered through approximately 100 unions.
Can I join a credit union?
In the past, credit unions have mostly been small non-profit outfits that have been set up by the members of a local community to benefit them. So, it could be set up by people living in a certain area, like Manchester Credit Union, which, unsurprisingly, allows people from Manchester and the surrounding areas to join. Or they can be formed by a group of people working in a certain industry, for example Voyager Alliance Credit Union, which is for transport workers in England, Scotland and Wales.
No credit checks
There’s no credit check on potential members, so they can be good for people with poor credit scores. Most unions will allow you to join as long as you deposit a minimum amount – using Manchester Credit Union as the example again, it’s just £3.00, plus an admin fee of £1.00, to join.
So, as long as you meet these two criteria, you should be able to join. Once you’ve become a member, you’ll be entitled to attend the annual general meeting and other meetings and have your say along with all the other members.
What do credit unions offer?
Credit unions can now offer much the same as a bank – loans, current (these are usually offered by the Co-operative Bank) and savings accounts and some even offer mortgages too, though most of these are in the Scotland at the present time.
However, it’s worth noting that the rates offered by credit unions are often less favourable than the big high-street banks. But the trade-off is that all the transactions you carry out at the credit union will be for the benefit of the members.
The savings accounts also work a little differently, you usually get paid a dividend at the end of the year, rather than a set amount of interest every month. The amount of interest you’ll receive depends on how well the union has done that year.
Some credit unions also put upper limits on the amounts that can be borrowed, usually the loans are below £3,000. There are even some unions offering pre-paid debit cards now too.
Is there anything else to pay?
Most credit unions will ask for a small annual fee, Manchester credit union asks for just £3.00, which they take automatically from the account each year.
Who regulates credit unions and is my money safe?
Credit unions are regulated and authorised by the Financial Conduct Authority, just like banks and building societies. If you put money into a credit union account it will usually be covered by the Financial Services Compensation Scheme (up to the scheme’s limits).
Where to find more information?
Credit unions can become members of the Association of British Credit Unions and, according to their website, roughly 70% of them have done this. The associations’ website also allows you to search for unions who have membership with them.
Disclaimer: All information and links are correct at the time of publishing.