Credit unions are more popular than ever – are they right for you if you need a loan or want to save?
CREDIT union loans to their members in the second quarter of this year totalled £1.6 billion according to new stats from the Bank of England.
That was an increase of 2.6 per cent over the previous three months. But are they right for you if you want a loan or to save?
What are credit unions?
Credit unions are locally-based organisations where members pool their savings to lend to one another.
This often allows them to offer low cost products and there are hopes that the sector can provide an alternative source of finance to banks and high cost pay day lenders.
They can offer a range of savings accounts, current accounts and loans to their members. You have the flexibility to save how much you like, when you like.
Last year a credit union topped the tables for savings rates.
StepChange Debt Charity has called credit unions “an important and valued part of the financial landscape”.
Check whether you are eligible to join. To be eligible to join a credit union, you typically have to have the same “common bond” with other members, though some credit unions have relaxed their criteria.
The common bond may be with people living or working in the same area, work colleagues or people who belong to the same organisation, such as a church or trade union.
What can I use a credit union for?
Because credit unions are owned by their members and are not-for-profit, you can often get a better savings rate than you might get with a normal bank.
You can also use credit unions to take out loans, usually at a better rate than most high-street lenders.
Some unions require that you have already saved money with them before you can take out a loan, but others don’t.
Interest rates can vary, but are capped by law at 42.6 per cent APR, which is considerably less than many short-term loans, including a payday loan.
The Treasury has teamed up with 15 credit unions across Great Britain to launch a new "PrizeSaver" scheme.
Moneyfacts has
Will your money be safe?
Nine credit unions went bust last year, the highest number of collapses since 2010 when 10 went into default.
It brings the total that have gone under in the past decade to 73.
Matt Bland, head of policy at the Association of British Credit Unions (Abcul), said recently: "We do unfortunately see a number of credit unions fail each year. Typically the credit unions that do fail are very small, with a few hundred or maybe a thousand people using them.”
But regulations are in place to act as a safety net.
The Financial Services Compensation Scheme also protects savings up to £85,000 held with an individual credit union, as it does with banks and building societies.
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