Credit unions UK: how to open a savings account or apply for a loan
Credit unions offer a community-funded alternative to giant banking. When it comes to savings, some of their rates can be hard to beat. Read on to find out who can save – or borrow – from a credit union in the UK.
Best New Savings Product for Credit Unions
A new savings account offers to pay the modest sum of 3% over one year. For comparison, the current one-year “best buy” fixed rate account pays just over half that amount at 1.55%.
While this rate can be matched – or even beaten – by some current accounts (as you’re no doubt sick of hearing us talk about), this particular account allows you to deposit up to £15,000.
That’s miles above what you can save with the Nationwide Flex (£2,500) or BST Classic Plus (£1,500) current accounts.
As always, there is a catch: the product is offered by detailCURE, a credit union that is only open to the 4.5 million people who work in the retail sector. Everyone else will have to look elsewhere for a home for their savings.
But what the deal highlights is the growing competitiveness of credit unions as a whole, and if you’re tired of the antics of the big banks, they offer a more community-based banking option.
In the rest of this guide, we’ll cover how these syndicates work, who they’re good for, how you can join, and any potential downsides.
Alternatively, you can view your main banking options here. Some of the offers are pretty decent, honest!
How to save with a credit union
Credit unions cannot exist without cash flow. If you just want to save some money that will then be made available to other members through loans, you can.
Until 2013, credit unions could not pay interest on savings. Instead, they paid a dividend once a year, usually around 2-3%, although some credit unions pay more. That has now changed.
If you’re just looking for a good return on your savings, credit unions aren’t always the best option. But if you want to put a little money aside, maybe for Christmas, and help people in your local community, you should definitely consider them.
Some credit unions now also offer Cash ISAs.
All savings with credit unions are covered by the Financial Services Compensation Scheme up to a limit of £85,000, although most credit unions have a maximum savings limit well below this amount.
Many credit unions allow you to pay into your account through a deduction from your paycheck. You might also be able to donate money to local shops, libraries and council offices.
How to borrow from a credit union
If instead you need to borrow some extra money and you’re having trouble getting a credit card or a 0% loan from a bank or building society, you should definitely take a look at what your local credit union has to offer.
You should know from the start that you will have to save money with the credit union, usually over a few months, before you can apply for a loan. So it’s not a miracle solution if you need money fast.
The amount you can borrow usually depends on how much you have saved during this period. It’s usually three or four times the amount you’ve saved.
You can usually borrow much less than you can from a bank or building society, sometimes as little as £100.
The annual interest rate is likely to be 10% to 25%, higher than many personal loans, but bear in mind that you cannot borrow less than £5,000 on most personal loans.
This figure is also lower than many credit cards and significantly lower than a payday loan.
If you’re a homeowner, you can take out a secured loan, but it puts your home at risk if you fall behind on your repayments. A credit union loan is not secured against your home.
By law, a credit union cannot charge you more than an annual interest rate of 26.8%. They also do not charge penalties for early repayment.
Most credit unions will be upfront about the cost of the loan and won’t even talk about it in terms of the interest rate.
Compare traditional loans on loveMONEY
Other products: insurance, mortgages and more
Some credit unions have expanded into offering checking accounts, prepaid cards, insurance, and even mortgages.
Want to win £500 this week? Subscribe to the loveMONEY newsletter
Find a caisse near you
The Association of British Credit Unions manages the findyourcreditunion.co.uk website, which will help you find a credit union near you.