A credit union is a financial co-operative where members join together in order to pool their financial resources. They exist, primarily, to encourage members to save money regularly, offer financial guidance and assistance, and to provide low interest rate loans to their members. They are non-profit organisations and members are typically tied by a geographical or other bond. A credit union will usually restrict membership so that only people living in a certain area, that are members of a specific group or union, or work for the same company, can join.
Community Credit Unions
There are an estimated 500 credit unions in existence across the country although they are under publicised so few people are really aware of their existence. With little or no marketing, credit union knowledge is usually shared by word of mouth and close association with other members. With that said, nearly 1 million people are members of the various unions that do exist.
The primary purpose of a credit union is to encourage users to take control of their finances. Every member is encouraged to save money when they can and some credit unions may place a minimum monthly saving stipulation, although this is usually a minimal amount such as £10. Members are able to save more, when they have it, and some do not have this minimum requirement making them an excellent vehicle for driving consumer savings.
Another beneficial service offered by the credit union is the credit union loan. By those that require or have required a small personal loan, this is where credit unions really stand out. Typically, it is possible for an individual to borrow up to around £3,000 and using a credit union negates the need to have to borrow money from doorstep lenders and other high interest options such as payday loans.
Loan amounts can range from as little as £50 to as much as £3,000 and terms are flexible. What’s more, while it was once a stipulation of any credit union loan that the borrower must have saved money as part of their membership previously, this is no longer the case with all credit unions. It is possible for brand new members of the union to be able to benefit from these same loans immediate after registration.
Since the beginning of 2012, credit unions have been given the ability to offer a greater range of financial products to their members. More than 20 now offer a form of current account, and all credit unions offer some type of savings account. Savings accounts do not pay interest, in the strictest sense of the word, and they instead opt to pay an annual dividend. This dividend could be as much as 8% but it could also be as low as 0% depending on the performance of the union itself.
Some credit unions also strive to help educate their members and provide them with the necessary knowledge so that they can enjoy greater financial freedom. This financial education typically runs in tandem with the savings accounts and loans and is a popular reason for joining a credit union in a lot of cases. More and more of the credit unions available are looking to introduce this beneficial service but not all are set up in such a way that they are currently able to do so.
The increased powers that are now afforded to credit unions mean that we should see more services being offered in the future. A handful are currently trialling prepaid cards which would mark a first in the credit union industry and, if successful, it is possible that such services will be rolled out across other unions.