What is a Credit Union and How to Find One

Credit unions are co-operatives that provide loans and savings accounts to members, and your employer or trade union may have an affiliation or you can search for one online.

Ruth Jackson-Kirby 18 November 2020

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Credit unions offer loans and savings accounts to their members. They can be a great alternative to mainstream lenders and high street banks.

What is a credit union?

Credit unions are co-operatives that provide financial products to their members. That means if you become a member of a credit union you can borrow money from it or open a savings account.

Credit unions are owned by their members and so they aren’t focused on providing profits or dividends to external investors. Instead, the aim of a credit union is to provide the best service to its members. This can be particularly helpful if you have previously struggled to open an account from a traditional bank or building society.

There are now more than 400 credit unions across the UK providing loans and savings accounts to more than 2 million members. Credit unions remain fairly small in the UK, but in other countries they are far more popular. In Ireland, for example, more than 70% of the population belongs to a credit union.

What services do credit unions offer?

Credit unions have three main purposes that dictate the services they offer:

  • Providing loans at low rates to members.
  • Encouraging members to save.
  • Giving financial advice and assistance to members.

At the very minimum, credit unions offer loans and savings accounts to members. But many offer a whole lot more including children’s savings accounts, prepaid debit cards, insurance, current accounts and ISAs, and a few even offer mortgages.

Loans from a credit union

If you are a member of a credit union, you can apply to borrow money from it. The rates are usually very good as the credit union doesn’t need to make money for shareholders. There is also a cap on how much interest they can charge. The limit is 3% a month, or 42.6% APR, in all of the UK except for Northern Ireland where the cap is 1% a month (12.9%APR).

Before you can apply for a loan from a credit union some will need you to have saved with them for a set period of time. This isn’t the case with all credit unions though, with some accepting loan applications from new members.

Because credit unions exist to help their members, credit union members might find more favourable rates with their credit union, giving them lower repayments.

You can usually borrow smaller unsecured loans for up to five years, or larger loans secured against your home or your car can be repaid over 10 or even 25 years.

An added benefit of a credit union loan is they come with free life insurance to cover the debt. This means if you die before you finish repaying your loan the life insurance will clear what you owe.

Saving with a credit union

Credit unions offer a variety of savings options. The type of account you can open will depend on what your credit union offers. Most offer simple easy access savings accounts, but there may be alternatives with higher returns such as fixed-rate bonds.

You may earn interest on savings as you would with a conventional savings account, but you are more likely to receive an annual dividend, which is a share of the credit union’s profits. The size of the payout will depend on how well the credit union has performed, and the more you save, the greater the share of the dividend you are likely to receive.

On top of offering interest or a dividend, many credit unions include free life insurance with their savings accounts. This means if you die your savings could be increased by an insurance pay out and then passed on to your beneficiaries.

Where to find a credit union

Members of a credit union will always have something in common. This could be:

  • You live in the same area.
  • You work for the same employer.
  • You belong to the same trade union, church or association.

Your employer, trade union or any group that you are a member of may be able to tell you if they are associated with a credit union. Otherwise the easiest way to find one is to search online.

How to join a credit union

Once you have found a credit union that you are eligible to become a member of, you will need to contact them to find out about the joining process.

How safe are credit unions?

Credit unions are regulated by the Prudential Regulatory Authority and the Financial Conduct Authority.

Savings up to £85,000 are protected by the Financial Services Compensation Scheme (FSCS), which means if the credit union fails you would get your money back.

About the author:

Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more

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