Nationwide credit union My Community Bank opens

My Community Bank is offering decent rates on both savings and payday loans – but it isn't open to everyone.

A new nationwide credit union has launched, promising lower interest rates on payday loans than the likes of Wonga and also decent returns for savers.

My Community Bank describes itself as an online credit union providing "community savings, community borrowing, ethical banking and community prosperity". It has grown out of a credit union for people living or working in the London borough of Brent.

However, in common with other credit unions, it isn’t open to everyone. Members need to share a 'common bond'.

How to become a member

To become a member of My Community Bank, you either need to:

• live or work in the London borough of Brent; or
• be "a member of an association – or support a charity – that promotes the welfare of Britain’s South Asian community".

The latter seems to be somewhat vague. A spokesperson told me that organisations from "South Asian dance schools to curry clubs" would be eligible.

So, for example, the members of the Tooting Curry Club would qualify, as it is a "cultural rather than ethnic bond".

Savings rates

My Community Bank is launching with three fixed rate savings accounts:

• a one-year account paying 2.15%;
• a two-year account paying 2.25%;
• and a three-year account paying 2.75%.

The one-year and three-year rates are actually market leading when you compare them to high street savings accounts.

Compare our top savings rates

Loan rates

My Community Bank will also be offering payday loans, although in common with most other credit unions the shortest repayment period is over six months. Payday loan companies typically only lend for a month or two. However, you can repay a loan early without any penalties.

Members will receive a 'decision in principle', also known as a 'soft search', when they apply online.

In its launch information, My Community Bank says the APR for a six-month payday loan of £500 will be just 26.8% – in real money that’s a cost of £11.01.

It then compares this to well-known payday lenders and what they charge for a £500 loan over 30 days.

*New Wonga customers can't borrow more than £400 so the cost has been extrapolated

It's a stark illustration of how much more the payday lenders charge.

You can't apply for a loan yet from My Community Bank, but you can send them your email address and they'll be in touch when they're starting to take applications.

Compare unsecured personal loans

Verdict

In many ways, My Community Bank is another step forward for credit unions in that it is open to people nationwide on a broader level than the likes of specific workplace Credit Unions, such as the National Fire Savers Credit Union. Its savings and loan offerings are also genuinely competitive. Perhaps most significantly, this is a genuinely online credit union. And it's the big payday lenders' use of online and mobile technology that has made applying for a loan dangerously easy.

However, the need to have the 'common bond' is likely to prevent many people from being able to join. And it's a shame the loans are not available yet; particularly on a day when the high cost of many payday loans is once again in the spotlight.

Ultimately, credit unions need to be able to offer far easier access to their potential members. Only then will they even begin to become a viable alternative to the big lenders.

What do you think of My Community Bank? A good idea or still too restrictive? Share your thoughts in the Comments box below.

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