Since they were first established in the UK in 1964, credit unions have becoming increasingly popular so that there are now over 300 different ones in England, Wales and Scotland. Over more than 5 decades, they have offered their financial services to over 1.3 million people.
The objective of a credit union is to encourage their members to use money wisely. One of the cornerstones of their philosophy is to promote the habit of saving regularly so as to avoid costly loans. This is achieved through standard savings accounts as well as more specialised financial products such as children’s savings accounts or ones to put by money for Christmas.
Apart from emphasising the importance of saving, some credit unions also offer budgeting and debt management advice for any of their members who have faced – or are facing – problems with poor financial decision-making in the past. Although credit unions often impose limits on how much money someone can save (usually up to £10,000-£15,000), all members are offered the same financial protection as they are by mainstream banks and building societies. Regulated by the PRA and FCA, each member’s savings account comes under the protection of the governmental FSCS (Financial Services Compensation Scheme) which has a maximum limit of £85,000.
As a credit union is owned by its members, it doesn’t have to pay out dividends to its shareholders and can act as a non-profit-making enterprise. Instead of offering those with savings a standard interest rate, it offers dividend rates at the end of the year. This rate can vary from year to year, but is usually around 1.3% depending on the size of the credit union, and how much has been ploughed back into it to improve the services it offers.
Small loans of £50-£3,000 are also available although some credit unions might stipulate that the borrower holds a savings account with them before approving a loan. They have no charges for paying off a loan early, and the loan usually comes with free life cover so any outstanding loan is automatically repaid in case of death.
To become a member of a credit union, you must share a ‘common bond’ with the other members. This could take many forms: living in the same area, working for the same employer/profession or could concern a shared interest. Once you’ve joined, you can remain a member even if your circumstances later change. For example, you move or get a new job.
One problem that some people have is finding a credit union for which they are eligible. If you aren’t eligible and are in urgent need of cash to tide you over, high acceptance payday loans direct lenders can often be the answer you’re looking for. With their streamlined and fast online application, you don’t have to wait long until the loan has been deposited into your account. Credit unions have many benefits, but they aren’t always available for everyone.
