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Tuesday, 26th October 2010
What is a Credit Union?
Credit Unions are financial co-operatives owned and controlled by their members. They offer savings and loans.
Membership numbers for Credit Unions in England and Wales now boast well over 1 million.
How do Credit Unions work?
Until January 2012 Credit Unions did not go to the money markets to raise money for loans; instead they attracted savers by paying them a return, not interest, but a dividend on their savings. These savings provided a pool of funds from which loans could be made and which was ‘rented’ to other members, who in turn paid interest on their borrowing.
Who runs the credit union?
A Credit Union is managed and controlled by a volunteer Board of Directors who are all members, with each member having only one vote irrespective of the amount of savings they may have.
Is borrowing from a Credit Union expensive?
Interest rates for loan repayments can vary between 1 - 3 per cent per month. This means that if you borrowed £1,000 at 1% per month over a year then you would pay back £1,067, i.e. £67 interest, just over £5 per month. You may find some unions vary the interest but it must not be more than 3% per month. Some will have their own loan calculator on their website which details exactly how much your payments are for your selected repayment period.
Credit Unions do not have penalties if you pay the loan off early and all loans will come with built in life insurance at no extra cost to the borrower, so if you were to die before the loan has been repaid then the life insurance would clear the debt.
A further upside of Credit Unions is that they often lend smaller amounts of money over flexible periods of time than your High Street bank would consider, for instance small loans of £50 to £3,000.
How much can I save with a Credit Union?
You can be flexible with the amount you wish to save on a weekly or monthly basis or whenever you have the spare cash.
Will my savings be safe and protected with a Credit Union?
Credit Unions are authorised and regulated by the Financial Conduct Authority (FCA).
A Credit Union is also required by law to maintain an insurance policy (fidelity bond) to protect the Credit Union against fraud or theft.
What are the key points about Credit Unions?
How do I find a Credit Union?
It is relatively simple to do - go to Find Me A Credit Union
If you know of someone that a Credit Union would be useful to but who does not have easy access to the internet, remember they can get this at their local library, then they can call The Association of British Credit Unions Limited (ABCUL) on 0161 832 3694 who will search for their nearest Credit Union.
Can I get interest on my savings with a Credit Union?
Previously every Credit Union had to have a "common bond” which determined who could join, for example a common bond would be people living or working in the same area, people working for the same employer such as the police service or people who belong to the same association, such as a trade union or even church.
However from the 8th January 2012 new rules removed the requirement of the 'common bond' making it easier for consumers to join a credit union with Credit Unions being able to pay interest on savings.
The interest received from loans is used to cover operating expenses and any surplus is put into reserves and goes towards paying a dividend to the savers. All profits from a credit union go towards developing the business or are returned to members; the only shareholders in a credit union are the members who use its services.
Can I have a bank account with a Credit Union?
The services offered are mainly savings and loans but some unions will also offer a bank account, a ‘Credit Union Current Account’, which will come with direct debits and cash withdrawal facilities through ATM machines. Some also offer ISAs and Child Trust Funds.