Credit Unions are financial co-operatives owned and controlled by their members. They offer savings and great value loans plus they are local, ethical and they know what their members want.

Membership numbers for Credit Unions now boast 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.

New rules remove 'the common bond' and allow interest on savings

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.

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.

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 - 2 per cent per month (12.7 - 26.8 per cent APR).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 2% 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. It’s that flexible!

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. Tell me where that happens with a High Street bank!

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 and will it be protected?

You can be flexible with the amount you wish to save on a weekly or monthly basis or whenever you have the spare cash.

All Credit Unions are regulated in the same way as UK banks and building societies by the Financial Services Authority (FSA) the City Watchdog.

A Credit Union is also required by law to maintain an insurance policy (fidelity bond) to protect the Credit Union against fraud or theft.

The key points about Credit Unions

• They offer a friendly and local service
• They have lower operating costs than the High Street banks which reflects in their products
• Any profits are returned to their members and not shareholders
• Their interest rates are on par or often lower than a High Street bank
• They are flexible with their savings and repayment periods for their loans and will offer lower amounts than can be borrowed from High Street banks.

How to 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.