There is a type of organisation that really is about treating you fairly, unlike 'the banks'...And even a great deal more fairly than building societies!
Banks are about making profits. In contrast, building societies sell themselves as communities that exist purely for their members. However, the real community financial services are undoubtedly ‘credit unions'.
The Association of British Credit Unions includes 346 credit unions with 490,000 members. They manage around a quarter of a billion pounds in members' savings, and about the same amount in loans.
Credit Unions are available to people with a common bond. There are credit unions for:
- People of specified careers, e.g. police officers, shipbuilders and employees of local councils
- People in associations: such as trade unions and parishes
- And for people who live or work in the same area.
Unlike banks, credit unions have no shareholders to pay. Unlike building societies, many of the smaller unions in particular are run by volunteers, which means no big wages or bonuses for the chief executives. The only beneficiaries are the members: you and your neighbours or colleagues, or those in your association or parish.
What can you get from them?
Credit unions can help people with financial difficulties to sort out their issues, to get their money back on track, to get people into the position to be able to save, and to educate members in the wise use of money.
They offer a small range of financial products. Thus, they are approved and monitored by the FSA and are covered by the Financial Services Compensation Scheme. For decades they have offered savings accounts and loans, and over time many unions have added Child Trust Funds, a facility to receive benefits payments direct, and current accounts.
Current accounts
Current accounts are a recent addition for credit unions and yet, despite this, more than 10,000 accounts have already been opened. These come with bank cards and the ability to set up direct debits. Another plus is that they offer no overdraft facility. Yes, this is a plus for most people! The two reasons are: there are no bank charges and it's easier to ensure you manage your money properly, without racking up debts.
Let me tell you some more about the other products that you can get:
Child Trust Funds
The Child Trust Funds on offer are just ‘cash CTFs', sadly. This means that the money in the CTF isn't invested, which is presumably what most Fools would prefer. Instead, your child earns interest in a similar way to earning interest in a savings account.
Savings accounts
What you will get in return for saving is difficult to predict, because you are paid once a year based on such things as the amount that the community has saved that year and the amount it has paid in loan interest.
Typically you might expect to get a measly 2%-3%, so if you've managed to build up £200 in savings and kept it there for a year you might get £4 extra after basic rate tax is deducted. There is a slim chance you'll get as much as 7% or 8% (but no more than 8%). That would mean about £12 extra to you after tax.
You can get much better rates from regular banks, but let's ignore the rate for a moment. Credit unions offer you the facility to save weekly or monthly, or to pay in whenever you want. They make it easy to save even just a few pounds a week, which soon adds up. You can pay in at many local outlets or straight from your wages. Finally, they help you to get in the position where you are able to save.
Personal loans
Rates for loans vary, but I've read about someone receiving a loan with just 3% APR. I think that more typically you'll get a loan of around 12% APR. When the union offers you a loan, please ask for the APR figure so you can do a proper comparison.
12% isn't fantastic, but you must consider this along with the terms you're offered, the assistance you get and the advice that comes with it. Credit unions are about helping a group of like-minded people with their finances. Your union won't simply give you a loan that you can't afford and then chase you for the contents of your house!
Also, credit unions are willing to lend small amounts of money, typically still for around 12% APR. When you borrow small amounts from other lenders you can expect the APR to be much, much, much higher!
The good terms that you can expect with credit-union loans include no early-repayment charges and the facility to repay weekly or monthly, whichever suits you.
Free savings and loan insurance
At no extra cost you get savings and loans insurance. Typically this means that, if you die unexpectedly, your savings in the union will be doubled and paid to your beneficiary. If you die before your loan is fully repaid, the union will write it off. This means that the loan amount won't be deducted from your savings before your money and other assets go to your family.
Who are credit unions really for?
Credit Unions say that they're for everyone, provided there is a union suitable for you. However, they clearly target, and are most useful for, people who aren't high earners: so that would be people earning around the average wage or less. They're also good for people who've had some financial difficulties, particularly, perhaps, people who are struggling to get banking services elsewhere.
Even so, from the feedback I have read, the staff at credit unions seem to be on the same wavelength as the members. You are not treated as someone to be screwed out of loads of money.
I think that anyone who is fed up with their bank and wants to be part of a community that cares about your financial wellbeing should consider a credit union. There are a surprising number of reasons why you may want to join one.
Other communities you may be interested in:
> Compare the best deals from the less friendly institutions: the banks!