The Unique Benefits of Banking with Credit Unions in the UK
If you’re looking for alternatives to traditional banks and financial institutions in the UK, credit unions can be worth considering. They are community-focused, not-for-profit organisations that provide similar financial services to banks while prioritising the financial well-being of their members over generating profits.
By joining a credit union, you not only become a member but also an owner, ensuring all decisions are taken in the best interest of everyone. From lower interest rates on loans to better returns on savings, credit unions in the UK make financial services more accessible for underserved individuals.
According to the Bank of England, there were over 2.1 million credit union members in the first quarter of 2024 alone with a 2.88% increase in loans extended, the highest level on record1. But what is driving the popularity of credit unions in the UK? Let’s find out.
Benefits of Banking with UK Credit Unions
Only 67% of customers in the UK trust the banks they currently bank with2. Credit unions have a member-centric approach, focusing on the financial well-being of their members instead of maximising profits. As such, opting for credit unions to meet your banking needs in the UK offers a host of benefits. These include:
1. High Returns on Savings and Deposits
One of the most significant benefits of banking with credit unions in the UK is that they offer higher returns on savings and deposits than traditional banks. Credit unions are non-profit organisations that reinvest their profits into the union to benefit their members. This allows them to maximise member benefits and offer better returns in the form of dividends.
These returns, typically ranging between 1% and 3%3, are particularly beneficial if you’re looking to park your deposits securely while earning attractive dividends on them.
2. Lower Interest Rates on Loans
Since credit unions focus on providing affordable and accessible financial services to their members, they often offer loans at lower interest rates. Whether you’re seeking funds for home improvement, business expansion, or personal use, you can avail of more favourable interest rates from credit unions than traditional banks.
This ensures a cost-effective borrowing option, allowing you to reduce your overall cost of borrowing and save more money over the loan tenure. Moreover, many credit unions in the UK also offer flexible terms and are willing to work with members with a limited credit history.
3. Community-focused Approach
Another benefit of banking with UK credit unions is their community-focused approach that puts their members’ interest over profits. Credit unions are owned and managed by their members and are focused on serving the local community. As a result, every decision they make is in the best interest of the community they serve.
This allows credit unions to understand their members’ unique needs better and offer more personalised solutions. Since credit unions are smaller than commercial banks and financial institutions, they are often more flexible and willing to support members during financial hardships. This community-focused approach creates a sense of belonging and trust, making credit unions a secure and reliable banking partner.
4. Fully Regulated by the FCA and PRA
UK credit unions are fully regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA)4. The FCA ensures all credit unions follow the regulations and operate fairly and transparently. This involves prioritising the best interests of members, providing clear information about products and services, and ensuring ethical lending practices.
On the other hand, the PRA monitors the financial stability of credit unions, ensuring they maintain sufficient capital reserves and minimise financial risk. Moreover, your deposits in a credit union are covered by the Financial Services Compensation Scheme (FSCS). This means if the credit union goes out of business, the FSCS will cover your deposit of up to £85,0005. These regulations provide peace of mind, knowing your savings and investments are secure.
5. Financial Coaching and Inclusivity
Another standout benefit of banking with credit unions in the UK is their focus on providing financial coaching and ensuring inclusivity. Since credit unions prioritise members’ financial well-being, they conduct regular financial education programs to empower members to make informed financial decisions. These could be free workshops, seminars, or one-on-one coaching sessions to help members understand essential financial concepts like budgeting, saving, and managing debt.
Moreover, credit unions are willing to extend credit to members who may not have the required income or credit history to meet the stringent eligibility demand of larger banks. This flexibility promotes financial inclusivity, ensuring members can get easy access to credit and improve their futures despite their financial backgrounds.
Things to Consider Before Joining a Credit Union in the UK
Before joining a UK credit union, it’s essential to consider several key factors like6:
- Location: Credit unions are small organisations that may only have a few branches across a state. Make sure your preferred credit union has a branch near your home.
- Member eligibility: Check if you meet the credit union’s eligibility criteria before applying for membership.
- ATMs: Credit unions typically have fewer ATMs. This means you might have to withdraw money from ATMs operated by other banks and pay a transaction fee.
Wrapping Up
Banking with a UK credit union offers a host of benefits. From higher interest rates on savings and lower loan rates to a community-focused approach and comprehensive financial coaching, credit unions prioritise member well-being and financial inclusivity. Moreover, since they are regulated by the FCA and PRA, you can rest assured that your deposits are secure.
However, before applying for a credit union membership, it’s important to consider factors like location, ATM availability, and eligibility criteria to make an informed decision.
References
1https://www.bankofengland.co.uk/statistics/credit-union/2024/2024-q1
2https://www.thebanker.com/Do-banks-really-understand-customers-needs-1704358247
3https://www.moneysavingexpert.com/loans/credit-unions/
4https://creditunion.co.uk/five-reasons-to-join-a-credit-union/
5https://creditunion.co.uk/about-london-mutual-credit-union/legal/
6https://www.raisin.com/en-us/banking/advantages-of-credit-unions
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