The financial crisis of the last few years has put many people in difficult financial situations. Dealing with this has become a matter of urgency for many of us and we have witnessed the rise of ‘payday loan’ companies as people are faced with bills they can’t pay. These companies are under close scrutiny by consumer watchdogs and Martin Lewis of MoneySavingExpert.com calls them an ‘expensive nightmare’. So, if banks won’t help you with a loan, where else can you turn? Well, credit unions are an option that is fast regaining popularity after decades of apparent anonymity.
The history of British credit unions
We can thank some innovative financial thinkers of the 19th century for the existence of credit unions, which can be described as ‘not-for-profit financial cooperatives’. They first appeared in Germany in the 1850s and quickly spread to Britain. By the end of the 19th century most European countries were involved in the movement, as was the USA and Canada. Currently, according to The Association of British Credit Unions Limited, (ABCUL) there are 40,258 credit unions in 79 countries, enabling 118 million members to access affordable financial services. And yet, most of us have hardly heard anything about them.
In 2014, ABCUL celebrated the 50th anniversary of the first British credit union founded in 1964, although they didn’t become legal until the 1979 Credit Unions Act. So, although Robert Owen of the 19th century Co-operative Movement had championed the concept, it was not until Hornsey Co-operative Credit Union was set up by a group of Jamaican immigrants, who were familiar with the savings culture that credit unions encourage, that Britain had its first true credit union. There are now around 500 credit unions in the UK and one million members. The largest of them has some 30,000 members and £100m in cash deposits. Until 1 April 2013, the Financial Services Authority regulated them, but regulation is now in the hands of the Prudential Regulation Authority and the Financial Conduct Authority.
Credit union social values
Credit unions are founded on the principle of people helping each other. As Mature Times said: “Many were founded on the principles of self-help and responsibility paired with the tenets of democracy, equality and solidarity –rather like the Three Musketeers – all for one and one for all!” This is what continues to drive credit unions and probably the reason that they have started to play a greater role in our financial lives, now that there has been a general disillusionment with the traditional bastions of personal finance.
How do you get involved with a credit union?
As this handy Which? guide suggests, you can either call ABCUL on 0161 832 3694 or search at Find Your Credit Union UK. All you have to do is enter your postcode, home town and a few other details and you’ll receive a list of the ones near to you. You need to contact the credit union yourself and they will tell you if you’re eligible for membership. They are there to help people who may have difficulty accessing high street bank services and nowadays that covers quite a chunk of society.
What will a credit union offer me?
Credit unions offer two things essentially: mutual and ethical savings, and affordable loans. When you save with a credit union, you know that your savings are helping other members of the union, who may be your neighbours, not some anonymous shareholder. Your money is protected by the Financial Services Compensation Scheme, so your cash is safe.
A savings scheme
You can deposit as much or as little as you want at weekly or monthly intervals, or more often if you’re able. Credit unions pay an annual dividend on your savings and this can be as much as 8%. That’s more than most banks offer at the moment. Some credit unions include life insurance with your savings at no extra cost.
You can get loans at an affordable rate. Some credit union loans will cost you no more than 1% a month on the reducing balance of the loan (an APR of 12.7%). So, for example, if you borrowed £1,000 over 12 months, your repayment would be no more than £1,067 in total. Martin Lewis said: “Credit unions aren’t just for people struggling to qualify for high street borrowing, they’re ‘best-buys’ for those looking to borrow smaller amounts.” So, what he is saying is: forget the payday loan companies and look at these amazing value loan rates offered by credit unions.
You do need to save with the credit union to get a loan, but there’s always a good case for saving and with a credit union you know you’re helping your local community while putting cash away for a rainy day, and putting yourself in a position to get a loan if you need one. Check out your local credit union – it might be a lifeline for you, or someone you know nearby.