Are credit unions a real alternative to banks?
If you’ve never thought about how a credit union could help your finances, it might be time to take a look.
These companies are an alternative to banks and other financial institutions, and although they are seen as a lifeline for those who cannot get a regular bank account, they can also offer competitive financial products to others, including including rates among the best on the market.
“Credit unions are the best kept secret in financial services,” says Paul Norgrove, CEO of Serve and Protect Credit Union. “We are not selling ourselves well enough. “
Robert Kelly, managing director of Association of British Credit Unions Limited (ABCUL), says there has been a “false perception” in the past that a credit union is a “bank for the poor”. The reality is that it is not.
“You might think there is still a bit of stigma, but credit unions offer competitive interest rates in terms of interest rates for savings and dividends, and there may be a very strong sense of cooperation and help to the community as well, ”he said. . “People deposit savings and get a good return. “
If you’ve never considered a credit union, you might be wondering what it does and how it can help you. Here are some answers to some of the most frequently asked questions.
What is a credit union and how is it different from a bank?
You probably don’t think of your bank as a “financial community,” but that’s exactly what a credit union will encourage you to do.
Unlike banks, credit unions are member-owned, not-for-profit, and have among their guiding principles the need to promote savings and savings and to provide education as well as credit.
They provide a limited number of financial services, usually only savings and loans (although this is about to change), and only lend what they borrow, rather than relying on financial instruments complex.
Can I join a credit union that I like?
Members of credit unions need to have a “common bond”, and in practice this is usually a place or profession. So you can usually only join a credit union in your area or a cooperative that relates to your profession.
The ABCUL website – Findyourcreditreunion.co.uk – will help you find credit unions that may accept you.
Are the prices good?
Unlike banks, credit unions don’t have to make a profit, which means their rates can be competitive in some cases.
Most of the loans they give are small (less than £ 3,000) and are often given to people with poor credit histories. Loan rates generally compare well with home lenders, and certainly with loan sharks, but less well with loans offered to those with high credit scores who wish to borrow more.
For example, Lewisham Credit Union in South East London offers loans between 0.75% per month (9.4% APR) and 2% per month (26.8% APR) depending on the size of the loan. agreed.
The representative APR (annual percentage rate) of short-term credit provider Klarna is 18.9%, but loans from traditional banks and other lenders such as the post office are available from 3%.
The other advantages of credit union loans are that they usually include life insurance, so that they will be repaid if you die and do not become a problem for your descendants, and you can usually prepay them without penalty, unlike many business loans. .
In terms of savings, it can be difficult to compare what credit unions offer, as most pay a “dividend” based on the performance of the credit union that year rather than giving an interest rate. .
Some, however, can be very competitive. The Serve & Protect credit union, for members of the fire, health, military, prison and police services, offers a regular savings account of 1.2% and a flexible saver of 1% with a maximum balance of £ 20,000, which beats just about anything else on the market.
“We’re very happy with it,” says Paul of Serve & Protect, adding that the union is committed to becoming more of a business in terms of pricing and service.
Life insurance is also included in many savings accounts with credit unions, which might come in handy for your family at a difficult time, so that’s an added bonus.
Is my money protected?
Yes, your money is just as safe in a credit union as it is in a bank. The Financial Services Compensation Scheme will reimburse you up to £ 85,000 if your credit union goes bankrupt, which is the same as if you had the money in a bank account.
Can I bank online with a credit union?
The answer to this question depends on the credit union you are a member of. Some are very forward-thinking and already have similar digital access to banks, with online transactions and even mobile phone apps, while others still offer mostly branch-based transactions.
Robert of ABCUL says there are steps underway to modernize credit unions as quickly as possible. “We must continue the digital transformation. “
Reforms to the credit union law are expected to expand the products that a credit union can offer, which should make them look more like traditional banks, so there will likely be more developments in terms of technology. once that happens.
How can I pay and withdraw money if there is no online service?
It differs depending on the credit union, but there may be a local office or you can use the local post office for transactions. Some even allow withdrawals from ATMs. If you are a member of a credit union linked to your job, you should be able to save with your payroll.
What about current accounts?
Most credit union accounts are for savings and loans, but it is possible to get a basic bank account with some unions. These accounts often offer debit cards, and allow you to set up automatic debits.
The advantage of these accounts is that there are no bank charges for late payments, but there is also no overdraft. You are also likely to pay a small amount for them.
You can transfer your checking account to a credit union, but it will take more than seven days.
What if I want to know more?
Do you think a credit union could be for you? The website Findyourcreditreunion.co.uk allows you to find unions that you may be able to join, then you can contact individual unions to find out what they offer.
A brief history of credit unions
According to the British Credit Union Historical Society (BCUHS), credit unions in the UK were first established in Scotland by Irish immigrants and by Caribbean immigrants to England in the 1960s.
These alternatives to moneylenders and other unofficial lending agencies were already popular in Germany and elsewhere, and became more popular in the UK after the passage of the Credit Unions Act in 1980.
The first registered British credit union was the Hornsey Co-operative, established in 1964 in north London by Caribbean families. It is the foundation of what is now the London Capital Credit Union.
ABCUL (Association of British Credit Unions Limited) reports that there are now 277 credit unions in England, Scotland and Wales employing over 1,700 people.
These unions are used by 1.4 million people, with total deposits of £ 1.54 billion and total loans of £ 1.1 billion.
The Bank of England says membership grew by almost 3% during the year through March 2020 (latest figures).
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