Everything you need to know about credit union loans and savings accounts, including where to join a credit union and the interest rates you can anticipate receiving on loans and accounts.
What exactly is a credit union, though?
Credit unions are organisations in the financial sector that operate on a not-for-profit basis and are generally established by members who share some form of community in common, such as their place of residence or their line of work. But this is beginning to shift.
Because there are over 500 credit unions in the United Kingdom, virtually everyone has access to at least one of them.
Credit unions were restricted by limitations that required all of their members to have one common bond, such as residing in the same geographical area or working for the same job. These restrictions were lifted on January 8, 2012, however until then, credit unions were hampered by these constraints.
Credit unions now have the ability to extend membership to a wider variety of organisations, which means that more people are potentially eligible to join.
For instance, a credit union that previously only offered its services to those who lived or worked in Pontefract will now be able to offer those same services to all of the employees of a company, regardless of where those employees lived or worked.
How exactly do credit unions operate?
Because the members of a credit union own and govern the organisation, the credit union does not have any outside stockholders to pay. They are managed by unpaid volunteers who are chosen by the organization’s members.
A credit union will reinvest whatever profits it produces back into the organisation while also offering a return on deposits made by members.
Are you eligible to use a credit union?
You will need to check to see if there is a credit union in your area or if there is one for people from your profession. An easy way to do this is by searching the website Find Your Credit Union, which was established by The Association of British Credit Unions Limited. If there is a credit union in your area, you will need to join it (Abcul).
You can also contact Abcul by calling this number: 0161 832 3694.
As was just noted, some credit unions may have loosened the requirements for membership, but this is something you will need to verify before applying.
What kinds of services are provided by credit unions?
The most common services provided by credit unions are savings accounts and loans, but some also include checking accounts, mortgages, and prepaid cards.
According to recent reports, approximately sixty credit unions currently provide checking accounts, forty provide a prepaid card service, but very few provide mortgages.
This section of the book will focus on how savings accounts and loans operate because those are the most typical services that are provided.
How secure is the money in my credit union savings account?
Yes, the safety of your savings is comparable to what it would be if they were kept in a bank or a building society.
The Financial Conduct Authority has granted credit unions the authorization and regulation necessary to operate as licenced deposit-taking institutions.
The Financial Services Compensation Scheme (FSCS) provides complete protection for these accounts, just like it does for regular savings accounts, up to the usual maximum of £85,000 per person.
Do I receive interest on the savings account I have at the credit union?
In the past, members of credit unions could only receive a retroactive dividend rather than interest on their funds.
However, credit unions can now pay interest on saves, which means it will be easier for individuals to compare the rates of return with other suppliers of savings options. This will also assist credit unions recruit more savers, despite the fact that most credit unions continue to pay dividends.
Get in touch with your community’s credit union to learn more about the amount of dividends it has paid in the recent past or to determine whether or not it offers an interest rate on deposits.
Are organisations eligible to become members of a credit union?
Under the previous guidelines, only individuals could become members of credit unions. This has since been changed. Because of the new regulations, organisations can now join a credit union (making up a maximum of 10 percent of the total membership) and take advantage of the financial services that the credit union offers.
It may now be possible, for instance, for a community group, housing association, or local employer to utilise a credit union to manage their money, which has the additional benefit of ensuring that the money stays within the community.
Questions and Answers About Saving with a Credit Union
We provide explanations to some of the most frequently asked questions regarding savings accounts at credit unions.
When a member of a credit union passes away, what happens to their savings?
When you save money with a credit union, you frequently get a free basic life insurance policy as an additional perk of the arrangement. Therefore, in the event of your passing, the value of your funds might be raised by this insurance—it could even be doubled—and paid to anyone you decide is appropriate.
Check the credit union’s policy before you sign up for the service because it varies from one institution to the next.
Are earnings on savings in credit unions taxable?
Yes. Both kinds of income that you receive from a credit union, whether they come in the form of savings interest or dividends, are subject to taxation, and both are considered to be savings interest.
This indicates that whatever you make goes toward your personal savings allowance, the amount of which is dependent upon the money that you bring in.
Your dividend allowance will not be increased by the money you make through a credit union, regardless of whether or not you are paid in dividends.
How do I go about taking money out of my credit union account?
Because of this, you will need to check with the organisation first before moving forward.
You may be able to withdraw money from certain credit unions by travelling to the credit union’s office in your area or by taking a check to the post office to have it cashed.
You may be able to withdraw money from cash machines on the high street or transfer money online to a particular account with certain major companies, which make the process far simpler.
How can I make a deposit into the savings account at the credit union?
Once more, the types of payment that are accepted will differ. You can normally make a deposit in the office of your local credit union, and in some cases, you can do so at the post office.
Payments made via BACS and debit cards are accepted by some of the larger credit unions.
If the credit union is associated with the company where you work, you may be eligible to make savings contributions directly through your paycheck.
I’d like to start my own credit union, is it possible?
It is possible for you to do so, but it will take some time. It can take up to three years to establish a credit union, and there are numerous stringent regulations that must be followed during the process.
You will need to select what the membership requirements for joining will be in order to prove that it will be a sustainable organisation and comply with the regulations set forth by the FSA.
Before deciding to establish your own credit union, it would be worthwhile to get in touch with a local organisation and inquire as to whether or not it would be open to adapting its services to meet your needs in the event that you find that existing credit unions do not meet your requirements.
What are the fees associated with credit union loans, and how much would it cost me to borrow money from a credit union?
When it comes to loans for lesser sums, loans from credit unions are typically more affordable than loans from the majority of other providers. Furthermore, loans from credit unions do not incur any penalties for loan establishment, administrative costs, or early redemption.
For example, the interest rate on many loans offered by credit unions is one percent each month, which is applied to the principal amount of the loan (an APR of 12.7 percent ).
This indicates that if you borrowed $1,000 and repaid it over the course of a year, your total repayment would be $1,067.
Even though this is the maximum allowed by law, some credit unions may charge more than this. However, the amount of interest that can be charged by a credit union cannot exceed three percent per month, calculated on the principal amount of a loan that is being paid off (an APR of 42.6 percent ).
Why should I think about getting a loan from a credit union?
Credit unions have very affordable interest rates on personal loans of up to approximately 3,000 pounds, and they are more than willing to provide loans for far lower amounts.
The principal amount of the loan is paid down while interest continues to be accrued. If you want to pay back your loan on a weekly basis rather than on a monthly basis, this is a crucial consideration, as doing so will result in a lower total interest payment.
You have a number of options available to you when it comes to repaying debts that you have received from a credit union.
Directly from your wages through payroll deduction, directly from your benefits if you pay them into the credit union through the PayPoint network, directly from your bank account through direct debit, or with cash at local offices or collection points are some of the ways in which you can contribute to the credit union.
There are no additional fees or costs that are concealed with credit union loans, and there are no penalties for paying back the loan early.
When someone takes out a loan from a credit union, they are also given the opportunity to save money, which means that by the time they have finished paying back the loan, their savings will have increased as well.
Who should consider applying for a loan from a credit union?
However, a growing number of credit unions are also providing larger-sum credit for significant purchases and, in some circumstances, even mortgages. The vast majority of credit unions are willing to hand out small sums of money.
In most cases, the maximum term for a personal loan offered by a credit union is five years, while the maximum term for a loan secured by the borrower’s property is ten years.
On the other hand, certain lenders are able to offer repayment terms of up to ten years for unsecured loans and up to twenty-five years for secured loans.
In the past, in order to qualify for a loan from a credit union, one was required to have a savings account there. On the other hand, many credit unions do not require members to do so these days.
What happens to the loan if I pass away while I still owe money to the credit union?
There is no additional cost to the borrower for the inclusion of life insurance in credit union loans; therefore, if you were to pass away prior to the loan being repaid, the life insurance would pay off the debt in its place.