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Would you ditch your bank for a credit union?

If you want to see a return to a ‘traditional banking’ model, look no further – it already exists in the credit union. It’s now time for this Cinderella to take her rightful place at the banking ball.

Want to avoid lining fat cats’ pockets? Absolutely. Owned and controlled by their members, credit unions have no outside shareholders to pay. They are run by volunteers elected by the membership and any profit they make is used to develop the credit union and provide a return to savers.

Want a secure home for your savings? Got that covered. Credit unions offer full protection of up to £85,000 under the Financial Services Compensation Scheme.

Want a fair return on your money? Tick. New rules mean that credit unions can now pay interest on savings, rather than a retrospective dividend on credit union profits. This means you’ll know exactly what return you’ll get on your savings and will be able to compare the rates of return with those on offer from banks.

Want to borrow money at a fair rate? Yes, credit unions do this too. Your local credit union is unlikely to match the rates available from the cheapest high street lenders. But if you have a less-than-perfect credit history, a credit union loan is likely to be cheaper than an overdraft, an impaired-history credit card, a doorstep lender or the 2,000+% APR charged by payday loan companies.

Want a local community-based account? Credit unions have that covered too. There are around 450 credit unions in the UK, many of them based on local high streets. And even if there isn’t one near you, the new rules that came in this month mean that credit unions no longer need to prove that all eligible members have something in common.

Previously, credit unions have been hampered by restrictions which meant all of their members had to have something in common – such as living in the same geographical area or working for the same employer.

Will you take the credit union challenge?

I’m putting my money where my mouth is. Having just moved house I’m in the process of joining my local credit union.

However, I have to say that I found the application process frustrating. I tried to apply online and had to print off a PDF, fill it in by hand and post it to the credit union. Credit unions can’t hope to match the advertising and technology budgets of the big banks, but the website itself felt amateurish.

Credit unions offer the solution to many of the UK’s banking problems and should be supported wholeheartedly. That said, they need to up their game if they’re going to inspire public trust and compete with the big boys.

richard says:
9 January 2012

I joined my credit union a few years back. I’m getting 3.25% return on my savings and affordable loans at 12.7% APR. It’s good to know my savings are protected by the FSCS too. The staff I deal with are always friendly and helpful and I feel they want to help which is my experience with my bank.
You can find your local or employment credit union via http://www.abcul.org

Mikhail says:
11 January 2012

I have higher returns from first direct / Saffron BS on my savings and 1.9% ARP (promotional) from Amex and 6% APR (permanent) from MBNA for my borrowings. Conclusion: you can find much better deals on the high street than in “credit unions”, “mutually friendly” banks/societies like the co-op and so on.

Sophie Gilbert says:
10 January 2012

I was thinking of joining a local credit union related to my job and I think you’ve persuaded me. Cheers.

@WFCCUClaire says:
11 January 2012

Just to correct one tiny element of this useful article: Credit Unions are often able to compete directly with the best rates on the High St for loans for amounts up to £3,000, especially if you’re already a saver of a few months standing. Many banks don’t want to look at small loans anyway, hence the rise in the atrocious payday lenders, but Credit Unions are happy to do so. Local, affordable, ethical, – what’s not to like?

@WFCCUClaire says:
11 January 2012

Thanks for that! May also be worth considering that as a long-standing saver of a Credit Union, you will become eligible for extremely low-cost loans which will beat most banks. For instance, at our CU, we recently offered a car loan of £7,000 at 6% APR to a long-standing saver, beating even the headline rates on offer from most High St banks. Long-standing customers of banks will often be offered good deals too but I think it’s prudent to spread your money and increase your options.

People with some spare cash to save may not want to ditch the convenience they get with banks but they could definitely benefit from having a Credit Union account too, getting the “double dividend” of a monetary dividend and a community benefit at no cost to you. Time everyone thought again about Credit Unions maybe?

@WFCCUClaire says:
12 January 2012

Hi Mikhail, good to know you’ve managed to find some good deals on the High St. Perhaps you’ve been lucky or maybe you have a larger loans or are able to lock up your savings for a period of time. Locally, we haven’t been able to find those sorts of deals from any High St banks for people who need immediate access to their savings and especially those who are not presently a customer of the bank in question. Credit Unions perhaps won’t suit everybody and they’re obviously not your first choice but I do think people should at least check out what their nearest CU has to offer before making their mind up about what works best for them.

anne says:
30 January 2012

ive been with my credit union over a year and would recommend them. i have a loan to cover cmas which on 300 i think i pay 30 interest. i have also opened up accounts for my kids. i put money in weekly. the only downside is its not easy access as the giro needs 2 signatures. on a plus it stops me spending. they have a main base and each day of the week they also have outposts, for want of a word so basically u can see an advisor where you live. i do have a normal bank account for my standing orders etc but i think if more people used little banks taking money away from the big wigs they would have to take notice. the more people invest in credit unions the more interest we as savers get, bonus.

In all honesty – I would not use them – unless they had identical facilities as my on-bank. Must add when I tried to get a few credit union loans for my insolvent friends – no loans forthcoming.

25 June 2012

I think with lots of Credit Unions, you’d be hard pressed to see the difference in terms of facilities and servcies, Richard. I’m a bit confused by your suggestion that you’d tried to get loans for your friends – all lenders would need to talk directly to your friends rather than to a friend, however helpful. If the friends were actually insolvent (ie bankrupt), it would be against the law for people to lend to them. If they are just broke and struggling, most Credit Unions would be able to help them, although this might take the form of a referral to money and debt advice services if they’re already so over their heads that another loan wouldn’t help matters. Unlike many for-profit lenders, Credit Unions aren’t out to grab people and lend to them, there to help people take control of their finances.

Sorry – I should have explained – I sometimes help people deal with budgeting problems (particularly OAPs) – So sometimes go with them when they apply for a Loan – So far our local credit union has not offered a meaningful loan – except when the person could have obtained a similar loan elsewhere.. Referring them somewhere else is the same as not getting a loan.

In fact this is why I am in favour of legal pay day loans schemes – because many do not qualify for any other loan at all – starving is not really an option..

25 June 2012

Now I understand Richard! There are some Credit Unions offering payday loans (London Mutual is one) at low rates, just to resolve the immediate problem while the person works on the rest but many Credit Unions don’t have the resources to do this.

Older people can also be tricky for smaller Credit Unions because the life insurance we pay for to cover the loans and savings of members won’t cover people above a certain age. I don’t know which Credit Union you approached but it may be useful to talk to them directly about the needs of the people you’re helping, or work in partnership with a local elderly care charity and the Credit Union. There may be other Credit Unions that you could also try.

Some of us have developed partnerships which can help to underwrite more difficult loans. The standard payday lender doesn’t appear to care what the person’s circumstances are, despite everything they say and makes the most money if people pay late or default so it’s rarely the answer for people who are really struggling, even though it may seem like a lifeline at the time.

CAB’s (and other free) money and debt advice services will contact the creditors and help to get them off the backs of people who are scared to open the post or answer the phone and sort out a repayment plan that will see people straight in the end, in nearly all cases.

You’re right that it’s not a loan, but it’s not turning them away in the sense that I felt you’d experienced as it may be the best solution for the individual concerned. If our Credit Union believes somebody cannot afford a loan big enough to resolve their problem, we will usually refer to CAB. If we refer to CAB, they’re seen within 7 days and the process of sorting out their problem starts immediately, along with sleeping at night again for many.

Please don’t give up on Credit Unions, they’re all individual and it pays to work with them to develop the kind of service you want if you don’t think it’s offered at the moment.