More and more, we are realising the importance of having savings, whether it’s for your first home, or just a rainy day fund in case things go wrong. Consequently, there are more and more services being provided which offer methods to help you save money, and one of these services is a credit union. The main aim for any credit union is to help its members save money and manage their finances, but many credit unions also offer other services to help with day-to-day cashflow and unexpected expenses.
A credit union is a member-run organisation which offers savings accounts to the members of its community. Some credit unions are much larger than others but each one is linked either by location or industry/profession, and its members receive dividends on a yearly basis.
Each month, you’ll pay money into your savings account by direct debit, local collection points or even directly from your wages, and typically, rather than earning interest on your savings, you’ll be paid a dividend each year based on how much you’ve saved. The more you save, the bigger your share of the dividend will be. Some credit unions do pay interest for their savings account rather than the dividend format so it’s important to check how your local credit union works before applying.
The dividend payment can be up to 3% in some cases, which might not sound a lot, but if you have £1000 in your savings account, you could receive up to £30 which is much higher than the saving account interest rates with most mainstream banks.
As credit unions are a not-for-profit, the money it generates will be used to cover the running costs of providing the service, and then every remaining penny is shared among its members, rather than being paid out to external shareholders and investors.
As with most bank accounts, your money is protected by the Financial Services Compensation Scheme up to £85,000 so your money is safe, even if your credit union fails.
As well as helping you save money, many credit unions also offer a loan service to help you manage your cashflow throughout the year. Smaller credit unions may only offer a few hundred or even a few thousand pounds, but much bigger credit unions can provide a mortgage if you’re eligible.
Usually, the interest rate on a small loan from a credit union is quite low as they focus on serving their members without generating a profit, however you have to be a member of the credit union in order to apply for a loan with them, and not everyone is eligible to become a member.
There’s not a lot of other options if you’re looking for a community based banking service, however a lot of banks and building societies do strive to create a comfortable and friendly environment for their customers. Having a savings account with a bank, rather than a credit union, might be more accessible to many people as almost anyone can open a basic bank account. Also high street branches or 24/7 online customer service means you can contact your bank at any time, rather than waiting for a weekly meeting.
Additionally, while banks generally don’t offer loans of less than £5,000, they do provide services like credit cards and overdrafts so you could still borrow a small amount of cash when you need to. Alternatively, you could try a short term loan which allows you to borrow a small amount of money for a short period of time, usually around 3 months, to help cover unexpected cashflow shortfalls occasionally throughout the year.
Being part of a credit union can help you save money and meet your cashflow needs, but it’s not the only option when it comes to putting a few pounds away or borrowing a few pounds in times of short term financial difficulty. If you aren’t eligible to become a member of a credit union, or you look into it and decide it’s not for you, there are alternatives to credit unions out there – you just need to do a little research to find a bank account or loan service that suits you!
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