Credit Unions

Stesnees

Hi everyone,
1st post so feel free to move if in wrong place.

I am thinking of joining my local credit union and just looking for some advice.

Just wandering what peoples views are on using a credit union for savings/loans etc rather than dealing with banks.

GrahamMarshall

First let me declare my interest in that I am a Treasurer for our local community Credit Union. A credit union can offer advantages to you in a number of areas.

1) They are regulated by the FSA (in the UK) and are insured so unlike christmas savings clubs and the like your money is protected and secure.

2) They usually offer loans at around 12% APR and do not usually impose any penalty for early repayment or charge an arrangement fee. This is much cheaper than most credit cards and can often be less than a bank would offer for a smaller loan (< £5000). It is also often cheaper to borrow 10 months worth of insurance payments (say for the car) rather than use the monthly payment plan offered by the insurer where the 'admin' fee often means the APR > 20%

3) Free life insurance on members share deposits provide upto an extra 100% of amount saved depending on age. Not a massive advantage but a nice little bit of assistance towards funeral costs for your family in the event of death.

4) A poor credit rating should not affect your ability to take a loan. However you do need to have saved for a period of time before you qualify for a loan and your savings cannot be reduced below a given level if you have a loan. e.g. in our case if you have a loan with £450 outstanding then you must keep £150 in savings (1/3).

5) Community Credit unions are usually more personal as they are run by members for members and will usually be able to take individual circumstances into account when making decisions.

6) They pay a dividend (usually annually) this may or may not be better than the interest rate you would get from your bank, it will all depend on the amount the union is receiving in interest from its members who have loans.

Personally I have a good credit rating but find it useful to be member in addition to having bank accounts. It offers a facility to arrange quick smaller loans to cope with unexpected expenses without having to withdraw money from savings accounts and the associated loss of interest.

skintbutsmiling01

I have a credit union account, have had 2 £500 loans and pay back £50 pm, been with them about 3 yrs now. The good thing is payments aren't structured, as long as you pay your loan repayment and a token towards your savings if its a good month you can pay extra for no charge.
No credit search either.

Stesnees

Thanks for the replies guys,

I think you just swung it for me, I too already have bank accounts and a decent credit rating. I think the 'community' thing appeals to me coz it doesnt feel as though anybody is profiteering from you.

I never thought about the car insurance thing either, could be a small saving but I suppose any savings a saving eh?!

Thanks again

Milarky

Stesnees wrote: »

I think the 'community' thing appeals to me coz it doesnt feel as though anybody is profiteering from you.

That largely depends on your point of view.

Unlike Graham's credit union, the one I belong to will charge you more than 12%. Their rates are 14% to 20%. Credit unions can now legally charge twice what they used to be allowed (up to 2% per month rather than the 1% limit it always had been) but depsite this fillip there have been many credit union failures in the five years since the FSA started regulating them [Remember that's the same FSA that didn't spot the NR crisis on its radar] and when credit unions do get into difficulties they are much more likely to fail than other financial institutions because they can't just go and get an emergency loan from anywhere or be taken over by a bank.

As to dividends, I must correct Graham. Credit unions may pay a dividend. This is an important distinction. Whenever you deposit money elsewhere else [and deposits are confusingly called 'shares' in credit unions] you do so at an advertised rate of interest. This means you'll definitely get something for each day you leave your money there and you'll know in advance what that amount will be. A dividend , although worked out in the same way as interest is at a rate determined after the end of the trading year. This is unavoidable since depositors are just like shareholders in any company - they take a chance on a dividend being paid (and use previous dividends as a guide as to what to expect) but can never be guaranteed one.

So last year for instance, my credit union didn't pay a dividend at all! And all members saving with it had to wait until after the year was ended to find this out. This year they say they are 'proposing' a dividend of 4%. But I can't trust that now since they also said they were going to propose a dividend of 4% before the last annual general meeting - and yet none was ever proposed. We can all say what we'd like to pay - the difference is that with credit unions that promise is entirely hopeful whereas with savings on deposit anywhere else interest is always payable at the specified rate.

As Graham suggests credit unions are most attractive for people who want to borrow relatively small amounts and who, therefore, would not be attractive to conventional lenders to lend to. The trouble is that depends on being able to borrow money from depositing members who don't get to know at what rate they are lending for this (august) purpose. Credit unions would therefore have more 'credibility' if they were required to pay a minimum (i.e. known) dividend and/or could pay different rates of dividend for different types of 'share' (which they can't by law because they have to treat all deposits equally)

I'm not a fan.....

Stesnees

Thanks for that Milarky, interesting stuff.

My local credit union has been around for around 10 years and is seen locally as a 'safe bet'
The interest charged on loans is 1% per month and last year a dividend of 3% was paid out to members. Now I know these figures are hardly outstanding but as I understand them, they are pretty much the norm.

The main reason I am thinking about joining is really to educate my younger ones about money. I have a 16 year old daughter about to go into working life and open her 1st bank account. Now like most 16 y/o she justs wants to get money and spend it, and doesn't really care what else could be done with it.

What I would like her to do is start saving with me in a union rather than a bank because I want her to know from an early age that banks only want to make money from us and there are other alternatives available. We aren't gonna be talking about massive funds, just a few quid spare per month.

Just not sure I'm going about it the right way (or if i'm even making myself clear:rolleyes: )

Thanks again