Last updated: July 2016
Saving with Credit Unions
Credit unions are a model that has worked as a way to provide mutual self-help in around 100 countries. Today, there are 57,000 credit unions around the world enabling 217 million members to access affordable financial services.
New London Credit Union in Southwark, credit London Mutual Credit Union
In some countries they are a much bigger part of the consumer ‘banking’ sector than they are in the UK. In Ireland, for example, over 70% of the population belong to a credit union. In America and Canada the figure is around 43%.
What is a credit union?
Credit unions can be set up by any group of people with a ‘common bond’, usually location, but sometimes trade (such as taxi drivers) or association (such as a church group).
They are mutuals, so that as well as being savers or borrowers, those who join become members who have a right to participate in decision-making. Credit unions’ main purpose is to provide affordable loans and safe savings to their members, as well as educating members on managing their own finances. Members pool their savings, allowing loans to be made to other members.
They specialise in issuing personal loans – normally between £50 and £3,000 – and you can commonly save up to £10,000 in one too. Rather than interest, an annual dividend of between 0% and 5% is paid to all savers (1% appears common at present).
How can I join a credit union?
There’s a great website at run by ABCUL – the Association of British Credit Unions – where typing in your postcode generates a list of the possible credit unions you could belong to, with links to follow up any interesting leads. Alternatively, you can call ABCUL on 0161 832 3694 to find out which unions you could save with.
Credit unions are covered by the Financial Services Compensation Scheme, so savings (up to £75,000 per person) are not at risk although most limit the total you can save with them to much below this.
Current accounts at credit unions
In the US and elsewhere, some credit unions offer full banking facilities and have grown to become much like building societies in the UK.
In our last product guide to Current Accounts in 2014, we mentioned that 25 of the larger British credit unions offered basic current accounts and that these were also a good option.
These accounts were operated through, and administered by, the Co-operative Bank. However, changes at The Co-operative Bank mean that this arrangement has now come to an end and so, unfortunately, they are not currently available.
We asked the Co-operative Bank and ABCUL for comment and they said:
“Agreement is being sought to close the Credit Union Current Account product, and there is ongoing dialogue between The Co-operative Bank, ABCUL and the credit unions who offer it with a view to bringing about the smoothest and best conclusion to the provision of this product. The credit unions involved are considering solutions which could mean their combined 32,000 current account customers can transfer to a similar product, and are looking at a number of potential alternative products for transactional banking and payments.”
Credit union statistics
There are around 340 credit unions across England, Scotland and Wales.
1,269,345 people are credit union members, including over 130,000 junior savers.
£1.17 billion is saved in British credit unions.
£769 million is out on loan to members.
Some credit unions offer mortgages, cash ISAs and insurance products.