What is a credit union?
A credit union provides financial services like savings, loans and current accounts for its members. But unlike a bank, a credit union is mutually owned and governed. This means it is accountable, and run to benefit the people who use its services. Credit unions are not driven by the need to generate shareholder profit.
- How common are credit unions?
Credit unions exist in over 105 countries worldwide but they were only introduced to the UK in the 60s. At the beginning of 2019 there were at least 440 UK credit unions, with a combined membership of over 2 million. UK credit unions hold nearly £2.75bn in savings and currently provide over £1.5bn in low cost loans.
- How do credit unions work?
Each member of a credit union owns a share and has a say in how it operates. Credit unions are governed by a volunteer board of directors, drawn from its membership. The board sets the strategic direction and overseeing the work of its management team. Any member can vote or stand for election to the board at an annual general meeting.
- Do credit unions pay interest on savings?
If a credit union generates a surplus at the end of the year, members can award themselves a dividend payment. This decision is usually taken at the credit union’s AGM.
A share of the dividend is determined by the amount a member has contributed to the shared pool of savings via their main savings account.
The credit union dividend payment is paid instead of interest on savings accounts.
- What services do credit unions provide?
Credit unions began as a simple way for members to pool their savings. From this collective pool, members could borrow when needed at affordable rates.
Modern credit unions like London Community Credit Union, have now expanded their services to include fully featured current accounts, savings and loan protection insurance, payroll saving and loan repayments, online banking and more.
- Can I join a credit union?
To join a credit union, you must share its “common bond”. For London Community Credit Union members, that bond is seven east and north London boroughs; the area in which we live, work or study.
Credit union members come from all walks of life. Some members join a credit union because they find it difficult to access mainstream financial services. Many members join because they are motivated by a desire to give back to their community. Every £ invested in the credit union is reinvested in the community.
- Is my money safe in a credit union?
Credit unions are part of the government’s Financial Services Compensation Scheme. Which means, just like with mainstream banks, your savings would be protected if the credit union were to fail.
The current level of savings protection is £85,000 per member or £170,000 for joint account holders.
Credit unions are also regulated by the Financial Services Authority and the Prudential Regulatory Authority. This means they have to comply with strict rules to ensure they protect your money and provide the service you expect.
