Saving with credit unions

What are the benefits of using a credit union?

Credit unions are co-operatives which provide savings, loans and a range of services to their members. Like building societies, they are mutuals owned and controlled by the members, not by external shareholders pushing for maximised profits. Each member has one vote, and volunteer directors are elected from the membership, by the membership.

Credit unions can be set up by any group of people with a ‘common bond’, usually location, but sometimes employer, trade (such as taxi drivers) or association (such as a church group). Since 2012, new rules have meant that credit unions can extend membership outside that common bond.

It is the appeal of participating in the local community that attracts many people to credit unions and differentiates them from other mutuals like building societies.

The idea of pooling member money to offer credit to individuals came about in late 19th century Europe as part of the emerging co-operative movement. The first official credit unions were founded in Germany in 1849 to save poor urban workers from resorting to loan sharks for financial help.

Credit unions have come a long way from the humble, local institutions that gave £10 loans to neighbours to cover their electricity bills. There are now 305 credit unions in the UK with £803 million out in loans.

Because there are so many, and they operate regionally, we have not included them on our score tables. Suffice to say that they are owned by members and only lend to members so there are unlikely to be any of the questionable shareholdings and investments that are the problem with banks. This will make them Best Buys for savings accounts and current accounts.

What they offer

Broadly speaking, they usually offer three types of service: savings accounts, loans and current accounts.

Savings accounts – an annual dividend, based on the credit union’s annual profit, is usually paid out evenly to all savers but, since 2012, they also have the option to pay interest. According to our latest state of the ethical market report, credit union savings grew by 8.2% in 2016 to £2,549 million. Credit Unions are covered by the Financial Services Compensation Scheme, so savings (up to £85,000 per person) are not at risk although most limit the total you can save with them to much below this. Some credit unions also offer Cash ISAs.

Loans – they offer affordable loans to their members. A key appeal of credit unions is a willingness to make small loans of £50 to £3,000 which many banks won’t do. Interest rates can vary, but are usually around 12.7% APR. Rates are capped by law at 42.6% APR, which is considerably less than many short-term loans, including payday loans. Some credit unions offer mortgages.

Current accounts – some credit unions also offer these. You don’t get an overdraft or chequebook, but a debit card and the ability to set up direct debits and standing orders. There will normally be a small monthly or weekly charge and additional charges for cash machine withdrawals.

These often used to be operated through the Co-op Bank, but now most credit union current accounts are Visa debit card accounts operated by payments provider The Contis Group (Engage accounts), or Mastercard accounts operated by Optimus Cards Group, such as the London Mutual one. Contis and Optimus are both relatively small, alternative finance companies without the complex ethical concerns of the mainstream banking industry.

See if your local credit union offers an Engage account.

You can also get ‘pre-paid’ debit card accounts which are more widely available. They don’t have direct debit facilities but the charges are usually lower.

Find a credit union

There’s a great website at Find Your Credit Union run by ABCUL – the Association of British Credit Unions. Type in your postcode to generate a list of the possible credit unions you could belong to, with links to websites, and a brief profile and list of services on offer. Alternatively, you can call ABCUL on 0161 832 3694 to find out which unions you could save with.

Credit union statistics

There are around 305 credit unions across England, Scotland and Wales.

1,290,545 people are credit union members, including over 136,491 junior savers.

£1.25 billion is saved in British credit unions.

£803 million is out on loan to members.

Worldwide there are 57,000 credit unions in 105 countries with 217 million members.

In some countries they are a much bigger part of the consumer ‘banking’ sector than they are in the UK. In Ireland, for example, 77% of the population belong to a credit union. In the USA the figure is around 48%.

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