The government recently announced an extra £73m for investment in credit unions, as well as plans to make credit union services available through the Post Office. We round up the key facts you need to know about credit unions.
What is a credit union?
Credit unions let people with a common link save and borrow money. The link could be a local community, workplace, trade union or other organisation. There are nearly 450 credit unions in Britain, so almost everyone has access to one.
What’s special about credit unions?
Credit unions are owned and controlled by their members, so they have no outside shareholders to pay. Any profit that a credit union makes is used to develop the credit union and provide a return to savers.
Are my savings safe with a credit union?
Credit unions are licensed deposit takers, authorised and regulated by the Financial Services Authority. They are fully covered by the Financial Services Compensation Scheme up to the standard limit (£85,000 since January 2011).
Are credit union loans expensive?
By law the amount of interest charged by a credit union can be no more than 2% a month on the reducing balance of a loan. That’s an APR of 26.8%.
In practice, many credit unions offer cheaper loans. For example, a credit union loan costing 1% a month on the reducing balance is equivalent to an APR of 12.7%. There are no set up fees or early redemption fees.
In general, credit unions will provide personal loans for up to five years and up to 10 years for a loan secured on a borrower’s property. Some will lend for up to 10 years for an unsecured loan, and up to 25 years for a secured one.
What if I die while I’ve got a credit union loan?
Life insurance is built into credit union loans at no extra cost to the borrower. If you die before the loan is repaid, the insurance will repay the loan for you.
How can I find my local credit union?
To open a savings account with a credit union, first of all you need to find one that covers the area where you live or work, your employer or an organisation you belong to, such as a trade union or church. You will then need to contact the credit union directly to set up your savings account.
To find your local credit union visit www.findyourcreditunion.co.uk or call the Association of British Credit Unions (Abcul) on 0161 832 3694.
- For more information on finding your local credit union and how they work, read the Which? guide to saving and borrowing with a credit union.
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