Credit unions are locally-owned banks, run by and for local people. It’s quite complicated to set one up, but your area likely has one already. Very popular abroad (especially in Ireland), these work very differently to banks.
Your money is still protected (up to around £85,000 or £170,000 for joint accounts) under financial law, and you can still join even if you’re in debt with another bank (get free help from StepChange debt charity).
How Do Credit Unions Work?
Once set up, a credit union is usually set up in a local community shop or school, although larger credit unions have their own branches. Unlike banks, they don’t offer interest. Instead, the more you save, the more dividends you receive at the end of the financial year. And these days, this could end up more than interest from banks.
Credit unions encourage you to save money, rather than to get into debt. So you’ll always find people giving free budgeting advice. And you’re not allowed to borrow money, until you have saved for a few months, proving that the loan would be responsibly paid back.
Under the law, interest rates are strict (and low) on credit unions loans. So say you borrowed £500, you likely would not pay more than £30 or £50 in interest over the entire loan period. Compare that with the banks!
How to Join a Credit Union
It’s pretty simple. Usually you just turn up with an application form and a couple of forms of ID. Some credit unions also let you use a hostel address, if you are homeless.
Once you join, you usually get access to a current and/or savings account. Some larger branches also offer pre-paid debit cards (these can take cash out, but only if you’re not in debt). Credit unions usually don’t offer overdrafts or credit cards.
A few very large credit unions may also offer other services like business loans and mortgages, or even insurance. But overall they are for saving money and rainy day accounts.
‘Common Bond’ Credit Unions
All credit unions operate under a ‘common bond’. This is usually (in England) for people who live in a certain city or county.
Find your local credit union (just type in your postcode)
However, others exist. These are mostly by profession (say people who work for a certain profession or belong to a religion). For example:
Credit Union Loans Help Local People
As noted above, loans are only given out to those who need them, and can pay them back responsibly. In reality, it’s good never to have loans. But if you need one, savings from credit union members go to something worthwhile.
For example, a big bank may charge a fortune on your loan, to then lend the money to arms dealers or animal-testing companies. But a credit union will charge a fair rate. Then lend that money say to fund equipment for a local independent bakery in your community.
So you not only get to save money, but your money helps to fund something that will also benefit you within your community, as well as helping that person build a successful small business.