Credit Unions - Are these a good option for savers and should they be offered as an employee benefit

Hornagl

I work for an organisation which has just announced a new employee benefit with a credit union. They are offering regular savings accounts which deduct money from net salary, you can save a min £5 a month and instead of interest, they pay annual dividends on performance. I have looked at the dividends paid previously and they have averaged 2% since 1996. Last year they paid 1%. 

At a time when interest rates are rising and there are regular instant access savings accounts being offered with rates of 2.5% plus, the credit union doesn't look like a good option.

Am I missing something?

Band7

In my experience, Credit Union savings rates / dividends are derisory, and not even guaranteed. You can easily get 7% AER in standard Regular Savings accounts. Those are not offered through employers, though, so you need to take action yourself, e.g. with a monthly SO from your current account. Easy enough to set up.

Albermarle

Also credit unions regularly go bust, although they are covered by the FSCS £85K

eskbanker

Hornagl said:

I work for an organisation which has just announced a new employee benefit with a credit union. They are offering regular savings accounts which deduct money from net salary...

It might be considered a meaningful benefit if they were deducting from gross salary and/or obtaining (significantly) preferential rates, but if not, how is this any different from you choosing to save wherever you like from your net income?

powerspowers

Hornagl said:

I work for an organisation which has just announced a new employee benefit with a credit union. They are offering regular savings accounts which deduct money from net salary, you can save a min £5 a month and instead of interest, they pay annual dividends on performance. I have looked at the dividends paid previously and they have averaged 2% since 1996. Last year they paid 1%. 

At a time when interest rates are rising and there are regular instant access savings accounts being offered with rates of 2.5% plus, the credit union doesn't look like a good option.

Am I missing something?

I work with credit unions and 2 benefits that may or may not sway you

1. credit unions are not for profit and the money is invested in the membership based on a common bond based on employment or locality- so your savings could benefit a fellow bus driver to buy a new fridge or someone local to kit out their new home. Rather than having your funds invested in god knows what, weapons, fossil fuels etc

2. Credit unions can be a good step for people who are new to saving or have trouble accessing credit. A large proportion of the population don’t have more than£100 in savings and so employers are seeing credit unions are a way to improve their employees financial position (which has benefits in terms of sickness absence and productivity).  Their APR on loans is higher but it’s better than payday lenders / your local friendly loan shark. 

I agree as interest rates are rising it’s harder to see the benefit for the individual saver. Many credit unions are struggling with overhead costs so dividends are less likely to be competitive for savers who shop around. For now I’m leaving my savings in my credit union account, but I’m currently in a position to be more community minded. 

powerspowers

Albermarle said:

Also credit unions regularly go bust, although they are covered by the FSCS £85K

Smaller credit unions, especially community based, volunteer-supported ones, regularly get subsumed into bigger credit unions. I think that is inevitable given rising costs and facing the slick marketing of easy access credit (loans pay the bills, savings are a liability as dividends need to be paid!)

Band7

powerspowers said:

1. credit unions are not for profit and the money is invested in the membership based on a common bond based on employment or locality- so your savings could benefit a fellow bus driver to buy a new fridge or someone local to kit out their new home. 

How do your loan rates compare with those of other lenders?  

fwor

Band7 said:

In my experience, Credit Union savings rates / dividends are derisory, and not even guaranteed.

That may appear to be true, but in reality the better rates that you can get elsewhere from bigger financial institutions are, in effect, cross-subsidised out of the profits that they make (or hope to make) from other products that they sell to you.

In my opinion, Credit Unions are a community resource that helps to balance out (in a small but worthwhile way) some of the financial inequalities that exist. I've got a small amount permanently invested in my local Credit Union for that reason, and not because of the interest that it returns to me.

flaneurs_lobster

fwor said:

Band7 said:

In my experience, Credit Union savings rates / dividends are derisory, and not even guaranteed.

That may appear to be true, but in reality the better rates that you can get elsewhere from bigger financial institutions are, in effect, cross-subsidised out of the profits that they make (or hope to make) from other products that they sell to you.

In my opinion, Credit Unions are a community resource that helps to balance out (in a small but worthwhile way) some of the financial inequalities that exist. I've got a small amount permanently invested in my local Credit Union for that reason, and not because of the interest that it returns to me.

What @fwor said. I've had some cash in my local CU for years, usually there's a small dividend. I figure my cash might do some good and, who knows, I might need a loan sometime.

powerspowers

Band7 said:

powerspowers said:

1. credit unions are not for profit and the money is invested in the membership based on a common bond based on employment or locality- so your savings could benefit a fellow bus driver to buy a new fridge or someone local to kit out their new home. 

How do your loan rates compare with those of other lenders?  

Credit union loans are capped at 42.6 APR and a lot of loans are at that level due to the risk profile of the customer and low operating margins. 

Payday lenders are usually around 200% and doorstep lenders can be over 400%. Not everyone can get a 0% credit card. 

wmb194

Third rate and amateurish would be my assessment of credit unions. They'll never see widespread adoption until the silly, 'common bond' restriction is lifted.