Credit Unions

EmehEm2005

What are Credit Unions?

Credit unions are financial co-operatives owned and controlled by their members. They offer savings and great value loans plus they are local, ethical and know what their members want.

Each credit union has a "common bond" which determines who can join it. The common bond may be for people living or working in the same area, people working for the same employer or people who belong to the same association, such as a church or trade union.

Saving with a credit union

Saving money with a credit union couldn't be simpler. Unlike some other savings schemes, you can save as much or as little as you like, weekly, monthly or as often as you wish. You can pay in at convenient local shops or collection points, or direct from your wages.

Credit unions aim to pay a dividend on savings once a year to all their members. This can be as much as 8% of the amount that people have saved, but is typically 2 or 3%.

Life savings insurance is included, at no cost to the member, making it easy to build up a useful nest egg for you and your family. On a member's death, the amount of savings can be as much as doubled by the insurance and paid to whoever the member chooses. (Subject to conditions)

There have recently been many concerns about the low number of people who are saving;credit unions make it easy to save and even a small amount each week will soon mount up.

And when you invest in your local credit union, you know that the only people you are benefiting are your neighbours or colleagues. Credit unions keep money within a community, because there are no outside shareholders to pay.
Credit unions can also offer cash based Child Trust Funds to their members.

Borrowing from a credit union

Borrowing from your credit union is great value.
By law, credit unions cannot charge more than 1% a month on the reducing balance of the loan (an APR of 12.7%). What this means for example that if you borrowed £1000 over 1 year, you would repay no more than £1067 in total. Many credit unions charge less, you can find out about what loans and interest rates on offer at your local credit union by contacting them via the Credit Union Search section.

Credit union loans come with no hidden charges and no penalties for repaying the loan early. Life insurance is built in, at no cost to the borrower, so if you were to die before you had repaid the loan, insurance would repay the loan for you.

When you borrow from a credit union, you may carry on saving, meaning that by the time you finish repaying the loan your savings have grown as well. You can work out how much a credit union loan could cost you by using our handy Loan Calculator.

Most credit unions can lend for up to 3 years (unsecured) and up to 7 years (secured). Version Two credit unions can lend for up to 5 years (unsecured) and up to 15 years (secured).

Financial literacy

Section 3(d) of the Credit Unions Act 1979 stipulates that one of the objects of a credit union is:
"the training and education of the members in the wise use of money and in the management of their financial affairs"

Credit Unions are actively involved on a day to day basis in improving the financial literacy of their members even though in the majority of cases there is not a "financial literacy" policy, structured programme or specific responsible member of staff. A lot of the work is on an informal basis and as such is not well documented.

History and world facts

Credit unions operating today in Britain are extremely varied in their size, membership and in the range of services they offer. But they all share a basic philosophy and set of principles, which they share with the worldwide credit union movement.

The ideas and values which are central to how credit unions work were developed in the 19th century; in Britain by pioneer co-operators such as Robert Owen; in Germany by innovators such as Herman Schulze-Delitzsch; and in North America, where Alphonse Desjardin was mapping his vision of co-operative credit. The credit union movement grew quickly throughout America and Canada and quickly became an influence for the rest of the world.

Credit unions in Jamaica began during the 1940s. Father John P Sullivan a Jesuit priest, believed that credit unions could assist working people to better cope with wartime conditions. In Ireland the first credit union was founded in 1958, thanks to schoolteacher Nora Herlihy and colleagues in the Dublin Central Co-operative Society, which she helped to found. Through contact with the Credit Union National Association(CUNA) in America, and visits between the two countries, the first of many credit unions in Ireland was founded.

Credit unions took some time to take off in England, Scotland and Wales. People who had seen the idea work in Ireland and the Caribbean were amongst the first British credit union pioneers, as were people who heard about the idea from relatives in Canada and elsewhere.

Before 1979, there was no legal structure for credit unions, so some of the early credit unions chose to register under the Companies Act and some under the Industrial and Provident Societies Act. Many of these credit union pioneers were very active in getting a legal structure for credit unions on the statute book. Eventually, in April 1979, the Credit Unions Act became the last Act to be passed by the outgoing Labour Government.

As ABCUL celebrates the 25th anniversary of the Credit Unions Act, we will be publishing more information on the early days of the credit union movement in Britain, and the people whose hard work made it happen.

So for a long time, credit unions have been part of an international movement. In 79 countries around the world, there are 40,258 credit unions, enabling 118 million members to access affordable financial services.

In Ireland, 50% of the population belong to a credit union, in America and Australia, the figure is around 30%. Credit unions are also growing fast in Eastern Europe, parts of South America, Africa and the Far East.

ABCUL is a member of the World Council of Credit Unions, which represents the credit union movement globally. Through membership of WOCCU, ABCUL and ABCUL members benefit from best practice information from around the world and tools such as the PEARLS Financial Monitoring System.

More information and details of your local Credit Union at
http://www.abcul.org/page/index.cfm

Sheffield Credit Union
FSA Reg No: 637c
6, The Gallery,
Castle Market, Exchange Street,
Sheffield,
South Yorkshire, S1 2AJ
Tel: 0114 276 0787
Web: https://www.fisy1.co.uk

Mike

Credit Union Board member

Turning_into_scrooge

and your point is

Savvy_Sue

Well I guess he could have been a bit snappier about it, but I often wonder why we don't hear more raves about Credit Unions, especially for people on low incomes. They are a cheap way of borrowing small amounts, and they encourage people to save small amounts in a flexible way.

Having said that I keep meaning to join the local one to where I work or live, just keep forgetting to go in and do it when they're open!

Milarky

I am sceptical about credit unions - having joined one in my local area a few years ago. They are a nice idea but there is plainly a gap between what they can offer/deliver and what the majority of the population [i.e. those who have choices about saving and borrowing, fortunately] would want and expect from a fiinancial institution [authorised and regulated by the FSA, no less!] these days.

Being 'mutual' is no real benefit either. Standard Life is a mutual, but that didn't stop it using dirty tricks [and spade fulls of members' money] to get the decision it wanted in 2000 [vote 'NO' to demualisation] or the decision it wants in 2006 [vote 'YES' to demutualisation]. Mutuals are just companies run by boards without the scrintiny of shareholders. Members of mutuals are taken advantage of in the long run. The larger the mutual organisation the more easily it slips into corporate misdeeds.

What I'd like to see happen with credit unions

1) They all should pay guaranteed rates of interest - not merely 2 or 3 percent. The propsect of saving for a nil dividend is unacceptable, but it's an option for any credit union sadly. Also, any money borrowed should be fully offest against any savings already held - so the member benefits. [Why should you save at 2% and borrow at 12%, when you only 'need' to borrow the difference, in reality?]

2) They should form a single market for saving and borrowing - this would allow economies of scale [that's fewer staff of course] as well as providing much more liquidity. Individual credit unions would have to 'opt out' to some extent from a common model of membership if they wanted to try something different. This should provide individual members with greater reassurance that their interests are being safeguarded.

3) IT/internet solutions: These could revolutionize the channels for saving and borrowing once a 'federated' CU structure is put in place to take advantage of it.

4) Government money: the 'savings gateway' scheme, presently run by Halifax should be made available on the basis of CU membership instead. 'Savings gateway' matches [or partially matches] individual savers' money with a government top up. The Halifax can't be allowed to monopolise this lucrative savings account in future [it doesn't pay the savers any interest on their savings for instance, ther simly get the top up payments]. So running it through CUs instead [Halifax might have the IT responsibilty, still, for a small fee] is the ideal channel for this free taxpayers cash. And this emphasises the importance of moving towards a nationally federated CU membership - only one gateway account per person is allowed, but if multiple CU membership cannot be identified, people would just join several at the same time.