Thinking about opening a Credit Union Savings Account in the United Kingdom? Credit unions are designed to help their members, rather than ‘chasing profits’ for their owners.
They typically include members who ‘pool’ their savings together, normally the members have something in common such as living in the same area, have the same employer, same religion and so on.
You’ll find that these credit unions tend to use their money to reward their members and improve services for everybody. In England, one of the biggest monetary unions is the co-operative group.
A UK credit union bank account might be great for you if you would like to save money with an organisation that matches your outlook, you want a flexible bank account which lets you save what you can, when you can. You may also like a credit union account if you’ve got a poor credit history and have had trouble opening a bank account with a standard bank or building society. Of course, these are not the only reasons why this form of account may be ideal for you, there just a quick example.
How do Credit Union Bank Accounts Operate?
As previously stated, normally credit unions are ‘run’ for the benefit of their members rather than shareholders. This means the members pool their savings together, so they’re able to lend to each other. To join a credit union, you’ll need to have a ‘common’ bond with other members, some unions have multiple bonds, others don’t. This can range from having the same employer, being a member of a political party, living in the same region and so on.
You may find that some credit unions offer ‘fixed rate interest’ on savings, while others don’t. Typically a lot of unions will give an annual dividend on any savings, this is how credit unions ‘share’ their profits with their members. The amount you’ll receive can vary, usually it depends on how much profit the union has made in the financial year.
Just like a traditional UK bank or building society, a union normally offers a basic savings account and loans. Some even offer ISAs and other investment products, however this isn’t always ‘standard’. You can save using a direct debit, having money subtracted from your wages or using a local collection ‘point’.
It’s important to remember that credit unions are different from each other, they can vary in size and some will have thousands of members. Equally others may only have hundreds of members. It’s up to you to decide which union is correct for your requirements and circumstances. Please read all terms and conditions before applying for an account.
What are the Risks / Things to be Aware of?
Pretty much every investment carries some form of ‘risk’, normally investments can go up, as well as down. Here’s some of the things you need to be aware of:
- Some credit unions may have ‘restrictions’ on how they invest. This can include what they invest in and how much money they lend. For example, some may not ‘lend’ for a business purpose but may to buy a home.
- Usually the ‘more’ you save, the larger share of the annual dividend you’ll receive. However, it’s important to remember that if the union fails to make a ‘profit’, you may not get a dividend at all.
- The dividend payment is normally ‘voted’ on at the union’s Annual General Meeting. This decides the amount of dividend which should be paid to its members.
- If you receive a dividend, the union typically won’t ‘deduct’ tax, you have the responsibility as a member to declare any dividend you receive and inform HMRC. As you may need to pay tax on it.
- Most unions will only offer you a debit card, this is fine for paying for normal items such as shopping, food, clothing, etc. Most unions won’t offer a credit card or overdraft.
- In ‘most cases’ you can withdraw money at any time, this includes at major ATM machines (Cash points), however some unions may not offer a full range of withdrawals. This means you may have to visit a local branch to get money.
- As most credit unions don’t offer credit cards or overdrafts, charges tend to be ‘low’ or non-existence. Though, this isn’t always the case. Some unions will charge fees for certain things, you’ll need to read the terms and conditions to see how this could apply to you.
- Should the union go ‘bust’, under the Financial Services Compensation Scheme, also known as the FSCS, customers are usually protected up to £85,000.
Why use a Credit Union?
Did you know, the first credit union in England was established in 1964. Over the last 50 years or so around 1.2 million people have used a union in England, Scotland and Wales. It’s not just England where there popular, around 200 million people are members of credit unions in over 100 countries!
Remember, Credit unions are owned by the ‘people’ who use their services, and not by external shareholders or investors. This means the importance is always placed on providing the best service to members, not maximising profits.
Here’s some more great ‘plus points’ to consider:
- Credit unions help customers to save regularly, borrow responsibly and keep on top of their finances.
- Credit unions make it easy to save, even a small amount saved each week will soon add up.
- Many UK employers have ‘partnerships’ with credit unions. This allows staff to save and repay loans direct from their payroll wage.
- Credit unions usually offer affordable loans, which can range from short term loans of a few hundred pounds to much larger loans for holidays, buying a car, home improvements and so on.