Credit Unions are the way forward!

How do they work?

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. In effect, they’re a savings and loan co-operative, which means the members pool their savings to lend to one another.

This is done in a not-for-profit way, so the cash is only used to run the services and reward the members – NOT to pay outside shareholders, like most other financial institutions. To keep all the money safe, credit unions can’t lend out all their members’ savings or plough the remainder into anything that carries too much risk, plus all money in savings unions has the same government protection as bank savings accounts.

It’s not just about the products. One of the main objectives of a credit union is: “The training and education of the members in the wise use of money and in the management of their financial affairs”.

How do credit union loans/borrowing work?

A key appeal of credit unions is a willingness to make small loans of £50 to £3,000, which high street banks often just won’t do.

What’s the interest rate?

The interest is usually around 12.7% APR (1% a month) going up to a maximum 26.8% APR. So if you borrow £100 over a year at most you’ll repay £126. These rates are higher than the cheapest credit cards or loans, but are MASSIVELY cheaper than the products offered to those who are usually turned down for loans from high street banks where rates can be 200% or more.

What are the monthly repayments on a one-year loan?

There aren’t any repayment penalties. Credit union loans usually carry NO hidden charges or penalties if you can pay off the loan early. Plus life cover is packed into the loan at no extra cost so if you die before paying off the loan, the insurance would repay the loan for you.

How do credit union savings/bank accounts work?

These tend to be ultra-flexible, allowing you to save amounts large or small weekly, monthly or whenever you can.

How much do they pay?

Rather than interest like a normal savings account, credit unions aim instead to pay a dividend on your savings each year. This simply means a payment back in proportion to the amount of money you’ve put in. Effectively, if the credit union is making money, you’ll get a cut of this, and the amount depends on how much you’ve saved.

Any other benefits?

Life savings insurance is included with savings account at no extra cost. This means that if you die, the amount of savings can be as much as doubled by the insurance and paid to whoever you choose. Further details on this are available from the individual credit unions.

How safe are savings in a credit union?

Credit Unions are small organisations and lack the enormous amounts of money the big banks tend to deal in. On the other hand, the regulations mean they must be far more prudent and not over-lend.

As with any type of savings, the most important thing to consider is “in the event it went bust, am I protected?” and the answer is yes. Credit union savings have exactly the same protection as normal savings accounts or, in other words, the Financial Services Compensation Scheme will pay back £50,000 per person, per institution.

You can find your nearest credit union in the phone-book. Or online at www.yell.com

DISCLAIMER: Our money advisors are skilled and experienced in their work, but their viewpoint and advice should not be taken as a statement of the law and regulations.