Credit unions play an important role in helping people to manage their money and improve their financial resilience. Find out more about how credit unions can help to support you.
Only around 2% of the UK population are members of a credit union. However, with over 393 million credit union members in over 118 different countries, they are one of the best kept secrets in financial services.
What is a credit union?
A credit union is a not-for-profit financial cooperative. Their aim is not to make a profit for themselves, but to provide products and services to best support their members. This is because credit unions do not have external shareholders.
By saving into a credit union account you become a member and your savings are treated as shares. This means that as a member you are essentially an owner of the credit union.
Because of this, as a member you are entitled to attend the credit union’s Annual General Meeting (AGM) and vote on key decisions about the running of the credit union. You can also be elected to become a member of the Board of Directors, who decide the overall strategy of the credit union.
To join a credit union you must fit it’s field of membership, or common bond. This could be living or working in a defined location, or working for a specific employer. You are eligible to join Serve and Protect Credit Union if you work in the Police, Prison & Probation, Military, Fire & Rescue, or Health & Social Care sectors in the UK.
What products and services do credit unions offer?
Credit unions offer a range of financial products and services designed to help their members to manage and improve their finances. Typically, these products come in the form of savings accounts and personal loans.
Different credit unions will offer slightly different products and services. Some will have physical branches where members can speak to a member of staff, while others will have a full online offering.
Many of the products credit unions offer are aimed at improving their members’ financial situation. This is done mainly by encouraging them to start saving, with services like salary deduction making saving simple and convenient. Some credit unions will also offer lending products aimed at building their members’ credit.
Unlike banks, credit unions do not typically pay interest on savings accounts. However, because they are member-owned, they usually pay their members a dividend at the end of their financial year.
In terms of lending, credit unions act as an ethical and affordable alternative to high-interest and illegal lending. The maximum rate a credit union can offer is 42.6% APR, compared to rates of around 1,250% for payday lenders.
Why should I join a credit union?
Joining a credit union is a great way to get into the habit of saving, with access to an ethical and affordable option to borrow when you need to. It is also a great way of financially supporting your community or your colleagues.
By saving with a credit union, you are providing funds which can be used to lend to other members when they need to borrow. This could be to consolidate their existing debt and save money on their repayments, or even to renovate their home.
This aspect of people helping people is what sets credit unions apart from other financial providers. For more information on the difference between credit unions and banks, click here.