With rising interest rates and an ever increasing cost of living, credit
unions may offer a more attractive means of raising revenue than banks
or credit cards. And all you need to do is become a member! Surely it
can’t be that easy.

The standard means of obtaining credit has become so widespread that
being at the mercy of increasing interest rates and inflated charges on
loans and credit cards has become so commonplace that it is easy to
believe there is no other option. But there may be an alternative in the
form of the little known credit union movement.

A credit union is a profit sharing, financial co-operative run
democratically by the members of the union itself. And by offering a
more financially attractive alternative to the standard products offered
by banks, the popularity of the credit union movement in the UK is
increasing. As maximizing profits is not the key goal for a credit
union, such an organisation has three main aims:

· To encourage its members to save regularly
· To provide loans and financial assistance to its members at the lowest
rates of interest possible
· To offer its members help and support, if required, in the management
of their financial affairs

To enable you to take advantage of the kind of services that a credit
union offers, all you have to do is become a member. Not that this is
quite as straightforward as you might imagine. The key to becoming a
member of a credit union is what is known as the ‘common bond’. The
common bond determines whether or not you will be accepted as a member
of a credit union and this could be that you reside in a specified area,
work for a particular employer or within a particular trade, or that you
are a member of a certain club or association. Because of this, credit
unions welcome everybody from within the common bond regardless of
income, employment status or age and also – and perhaps more crucially,
regardless of your credit rating or if you are unable to save a regular
amount. So whether you have a poor credit rating or not you can still
become a member of a credit union and save as little or as much as you
like. Irregular savers are just as welcome as those people who are able
to save money on a regular basis and usually all members, regardless of
the amount saved, are paid the same percentage annual dividend on their
savings. Whilst generally paid at 2 to 3%, this can be as much as 8%
depending on profits.

Using the sum of all members’ savings, the credit union is then able to
provide low cost financial services to its members. Although each credit
union (as all mutual societies) must ensure that enough money is set
aside to ensure financial stability, all other profits are used to
provide the lowest interest rates for members’ loans whilst returning an
attractive rate of interest for its savers.

With an attractive 6% being the typical interest rate on loan repayments
(which normally includes insurance at no direct cost), as the rate of
interest that a credit union can charge is capped at 1% a month the most
interest you would have to pay on a loan of £100 for example would be
only £1 a month!

Insofar as government regulation is concerned, the Credit Unions Act
1979 remains the key legislation that regulates the activities of credit
unions. As well as setting out the objectives of an individual credit
union, it also mandates that all accounts are independently audited on
an annual basis and that full insurance is put in place against fraud
and theft. Also, a given credit union cannot lend all the money saved as
loans to its members and cannot invest any residual money in any
ventures above a certain level of risk. To reduce the risk of bad
investment and to ensure that all savers’ money is not tied up for long
periods of time, any money in the control of the credit union must be
put into bank deposit accounts, government bonds or other reliable
investments.

Overall, credit unions offer an easy and convenient way to save and
borrow and can provide a focal point for a community by bringing people
together, to both help each other and to help the community as a whole.
A credit union can also help to revive the economy of a local area as
more money stays within the community which has a knock on effect on
income for local businesses.

All you have to do is prove that you can save before any loan will be
offered but once proven, financial assistance will be offered based on
how much you can save or tailored to your individual circumstances.
Paying into a credit union is also easy and can be done at local shops,
convenient collection points, or can even be taken directly from your
salary.

So is becoming a member of a credit union right for everyone? Before
considering them it is worthwhile bearing the following points in mind:

· Regardless of which credit union offers you the best option, you
cannot simply join whichever credit union you want. You have to fulfill
the requirements of the common bond or at the very least, be a close
family relation of someone that does and who is already a member.

· Credit unions are not just a means of obtaining cheaper loans.
Although there is no fixed rule for all credit unions, generally you
have to have saved with them before any assistance is offered and proved
yourself to be able to save.

· A credit union does not provide the convenience of the high street
banks as an individual union will typically have very few or sometimes
no ATMs and few branch offices.

· Credit unions may not offer the range of services that you can get
from your local bank so check to see what is on offer before you commit.
Other services such as the return of cancelled checks etc. may also not
be provided. It may be worth retaining an account at your bank alongside
credit union membership.

· All money borrowed from or saved with a credit union must be in the
name of a member and as such, no money can be borrowed in the name of
your business. Even if you need money for your business you still need
to borrow money in the manner of a standard member of the credit union.

If you above points do not preclude you from becoming a member of a
credit union then the best way to obtain a list of the credit unions
operating in your local area would be from the Citizens Advice Bureau or
your local council. Alternatively there may be a credit union covering
the particular industry/place of employment where you or your partner
work so it may be worthwhile contacting your payroll department or trade
union representative.

Although relatively small in size due to legal restrictions in place to
prevent unfair competition with banks and other financial institutions,
the UK credit union movement is growing in popularity and offers a real
alternative to expensive bank loans or credit cards. Even if your credit
rating is poor or non-existent, a credit union may be the right option
for you.

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