RetailCURE, a credit union for retail workers, has launched a market-leading savings deal on balances up to £15,000 – but does this new offer beat a savings account?
Savers eligible to join the union can earn 3% AER on deposits of up to £15,000 with a one-year fixed account. In comparison, the top one-year fixed rate in the Which? Money Compare tables is 1.61% AER.
The union will also pay 2% AER on its six-month fixed account or 1% AER to savers who want instant access.
Here, we weigh up the pros and cons to choosing a credit union for your savings.
Saving with a credit union
Credit unions encourage members to regularly deposit savings, allowing the union to lend this money out at affordable interest rates.
Until recently, credit unions were not allowed to pay interest on savings balances. Although the laws were changed in 2012, competitive offers – such as those launched by retailCURE – remain rare.
Most unions still pay an annual dividend to savers instead of interest. Historically, these can be worth as much as 8% depending on performance, but some years you could get nothing. If you’re considering joining your local credit union, ask what dividends, if any, it has paid in the past.
Credit unions are covered by the Financial Services Compensation Scheme, meaning up to £75,000 of your savings will be protected in the case of your union going bust.
Find out more: saving with a credit union – our guide explains all you need to know
How to make the most of your savings
With the Bank of England base rate at a record low, it has become harder for savers to find deals that can protect their money against inflation.
In fact, no savings account or cash Isa in the Which? Money Compare tables can currently beat the CPI inflation rate of 2.7%.
Still, even if your local credit union is unable to offer an inflation-busting savings deal, there are ways to prevent your money from being eroded:
There are a number of current accounts offering tempting interest rates, albeit on smaller in-credit balances. The Nationwide FlexDirect account pays 5% AER on balances up to £2,500 in the first year, dropping to 1% AER thereafter. Meanwhile, Tesco Bank pays 3% AER on balances up to £3,000.
Last week, Which? revealed that you can earn inflation-busting returns on up to £20,000 by opening multiple current accounts and bouncing money between them.
Most current accounts have to be credited with a minimum monthly amount and have a number of direct debits set up in order for customers to be eligible for interest payments.
Peer-to-peer lending companies match lenders up directly with borrowers without the middle-man. This means they have smaller overheads than traditional savings providers and can offer superior interest rates.
Later this month, Zopa will become the first major peer-to-peer company to offer savers an innovative finance Isa.
But with any peer-to-peer product, there is a chance that those who borrow your money won’t pay it back – make sure you’re comfortable with that risk before considering this option.
Find out more: peer-to-peer lending explained – we explore the pros and cons in detail
Investing in stocks and shares remains a popular long-term strategy to beat inflation.
If you choose to do this within a stocks and shares Isa, you’ll pay no tax on capital gains and a lower rate of dividend tax.
However, the value of your investments can go down as well as up, a risk you would need to accept f you decide to play the market.
Find out more: how to invest – see our beginner’s guide
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.