This week sees the launch of My Community Bank, an online credit union available to borrowers and savers across the UK.
It aims to provide an alternative to ‘addictive and expensive’ payday loans and will also offer market-beating interest rates to savers disillusioned with high street banks.
What is a credit union?
Credit unions are not-for-profit financial organisations that are owned and controlled by their members, so they have no outside shareholders to pay.
Until January 2012, credit unions were hampered by restrictions which meant all of their members had to have a common bond – such as living in the same geographical area or working for the same employer – but these rules have since been relaxed.
My Community Bank is the first credit union to take advantage of these changes, but members must still share one of two common bonds. Firstly, membership is open to anyone who live or works in the London Borough of Brent and, on a national level, members must be associated with the UK’s South Asian community.
Market-leading savings rates
My Community Bank aims to provide an alternative to savers disillusioned with high street banks by offering market-leading interest rates on its fixed-term savings accounts. Its one-year fixed-term account pays 2.15%, while you could earn 2.75% by tying your money up for three years.
The maximum amount that can be deposited in a My Community Bank fixed-term savings account is £15,000, and savings will be protected under the Financial Services Compensation Scheme (FSCS).
‘Simple and affordable’ short-term loans
As well as its savings accounts, My Community Bank will offer loans of between six and 36 months with an APR of 26.80%. Lending decisions, in principle, will be provided instantly via an online affordability and credit check.
Customers taking out a loan of £500 from My Community Bank over a six-month period would pay just £11.01 in interest, while a 30-day loan for the same amount from Wonga would cost £150.00
Mohsin Mehdi, chief executive of My Community Bank, said ‘We are an antidote to the addictive and expensive type of loan offered by payday lenders. We will lend to people who aren’t lucky enough to be in the top 10% of borrowers that the high street banks will lend to.’