When it comes to saving money, it’s essential you choose to save with a financial institution that works for you. After all, you need to ensure your money is safe, secure, accessible, and maybe even making money simultaneously.
In this modern age, your main choices regarding where to save narrow down to two main options; traditional banks and credit unions.
Credit unions are different from other banks and savings institutions because they tend to focus more on their members’ financial lives. That means many credit unions don’t offer the same checking and savings options as other financial institutions. However, this shouldn’t dissuade you from opening an account with a credit union if you’re looking for a place to save money. In fact, there are lots of benefits to using a credit union.
This is your complete guide to everything you need to know about saving with a credit union.
What is a credit union?
Credit unions are not-for-profit organisations owned by their members, also known as ‘financial cooperatives.’ Credit unions exist to serve the financial needs of their members, who are called “members” instead of the shareholders. On the other hand, traditional banks are run by management, investors, shareholders, and officials who aim to provide financial services for profit and basically want to make money from a business standpoint.
Credit unions can be owned by a set group of people, and some unions will refer to themselves as “shareholders,” but they are officially owned by the people who use them, making them “member-owned.” Credit unions can also be known as “mutual” or “mutual savings” institutions.
Credit unions, similar to other financial institutions, are designed to fit the needs of the members that use them, rather than operating for profit. Credit unions often focus on offering cheaper borrowing rates on loans and higher interest rates on savings. Because of this, credit unions are often a better choice for those who are looking for a low-cost and convenient way to save money than banks.
In the UK, the first credit union appeared around 1964, but the industry has grown in popularity ever since, currently working with over 1,200,000 people across the UK and over 217 million consumers worldwide in over 105 countries.
How does a Credit Union work?
Credit unions are owned by their members and are regulated by a state government agency or governing financial body. In the UK, this is the Financial Conduct Authority or FCA, and in the US, it’s the Federal Reserve System or the SEC. Credit union employees manage the credit union and handle member transactions, and the credit union owners are the members themselves. This means that the credit union’s profits are “returned” to the members who own it.
In fact, every single credit union member gets a vote, and directors who run the credit union are voted in by these members. This helps to promote the culture that credit unions exist for the people with the aim of creating the best service possible, not maximising profit for shareholders.
Credit unions are often organised under a specific state’s laws, ensuring that they are registered and operate within the confines of the law, which makes it easy for consumers to find a credit union that operates professionally and works well for them in a safe and secure way. Credit unions are often organised under state laws, making it easy for you to find one that is regulated by your state.
Credit unions work by allowing everybody to pool their money and savings in what is essentially one big pot, just like what happens with traditional banks. When someone wants to take out a mortgage or a loan, then the money is taken from that pot and paid back with interest that helps pay the managers and provide better services and infrastructure.
Usually, a credit union is set up by people with something in common. This could be the geographical location of everyone, working for the same company or employer, or acting as members of a similar group, such as being in a church, a trade union, or some kind of other association. Each credit union has its own entry rules, specifications, and requirements you’ll need to meet in order to become a part of the union.
When should I use a credit union?
Credit unions are most beneficial for those looking to save money or use financial services because they offer great deals and opportunities. These days, most credit unions offer the standard financial services you’d expect to find in most banks, including checking accounts, savings accounts, loans, and more, meaning there’s no reason to open a credit union savings account if you’re looking to make larger purchases in the future, or even just preparing for a rainy day.
If you’re looking to take out a loan, credit unions tend to offer lower rates than banks, and it’s also a good idea to look into “no fee” loan programs like those offered by credit unions. Credit unions often offer no upfront fees and no annual fees on loan programs, which can save you a lot of money over the long run.
Again, there are requirements to join most credit unions, and if you aren’t eligible, you won’t be able to gain membership. However, if you do fit the bill, then it’s certainly a move you should consider.
What are the types of credit unions?
The types of credit unions are:
Conventional Credit Union – The majority of credit unions are “blended” credit unions, meaning they are owned by the credit union members and not the credit union’s shareholders.
Cooperative Credit Union – A “cooperative credit union” is a credit union-owned by its members, just like a “conventional credit union.” However, unlike a “blended credit union,” a “conventional credit union” is operated by a non-profit organisation or company.
Community Credit Union – Credit unions that are owned by the members of the credit union are often organised under a specific state’s laws, making it easy to find one that is regulated by your state. However, credit unions also exist under the laws of the country where they are chartered, meaning that they are organised under the laws of the country in which they are located. A “community credit union” is one of these kinds of credit unions. They are made up of communities that come together to create such an organisation. This could be a small, local area credit union that operates within a town or city, or it could be relative to a larger community, like a college, employer group, or military institution.
Which credit union is the best?
Many credit unions offer various savings accounts and loans, making it difficult to choose the best one for you. One of the best ways to find the best credit union for you is to research online and conduct a basic search for credit unions in your area.
This will show you which credit unions are in your area and which can help you choose the best credit union for you. Once you have the best credit union for you, you can go ahead and open an account with them.
To give you an idea of what you can expect, here’s a lowdown of current UK credit unions you may be interested in joining.
|Credit Union||Membership Requirements||Features||Available Loan Types||Interest Rates of Available Loan Types|
|London Capital Credit Union||You must live, work or study in the Brent, Hackney, Islington, Kent, Barnet, Camden, London, Waltham Forest, or Enfield areas of London, or if you’re a member of The Coop Group in London or the South East of England.||This credit union has over 11,000 members and over £7 million in assets. Offers savings accounts, and low-cost loans.||Saver Loan 1 Saver Loan 2 Homeowner Flexi Loan Security Loan Family Loan||12.7% 19.5% 3 to 10% 27%|
|National Fire Savers Credit Union||Must be a firefighter or work as a member of staff within a firefighting rescue institution.||Established back in 1998, there are over 4,000 members in the union with assets totalling £11 million. You can earn dividends on savings accounts and have access to loans and club accounts that provide discounts and financial opportunities.||Everyday Member Affiliate Non-affiliate Savers||27% 17% 12% 13% 3%|
|Lewisham Plus Credit Union||You must live or work in the Lewisham, Bromley, or SE19 postcode area.||Serving over 9,000 adults and 1,500 junior members, you can access loans, savings accounts, and banking facilities through this credit union, and you will also get paid dividends on your savings.||Save as you borrow Personal Loyalty Saver Household Goods Guarantor||Can vary depending on the times. Average between 6 and 42% APR.|
|North London Credit Union||You must live or work in certain northern parts of London, such as Haringey, and Enfield, or work for organisations like Barnet & Southgate College, London Energy, and more.||Founded back in 1994, this is a simple credit union that offers a broad range of financial services, including four loan services, junior accounts, and a dividend payout based on your financial performance for the year.||Secured Personal Debt Consolidation||5% Varies depending on borrowed amount 27%|
|Eastern Savings & Loans Credit Union||You must live, work, or study in the Ipswich, Suffolk, Norfolk, or Cambridgeshire counties of the UK. You can also work for local organisations, such as Greene King, the Freebridge Housing Association, and so on.||There are plenty of financial services available here, including multiple types of savings accounts, Dividend payouts, junior accounts, and more. There are joining and small monthly fees for having an account, but these can be as little as 25p per week.||Child Benefit Starter Flexible Christmas Saver Car||All vary depending on loan terms, times, and the amount loaned.|
What are the advantages of a Credit Union?
The advantages of a credit union are:
- Lower Fees Than Traditional Banks – By far the most attractive aspect of banking with a credit union is that they offer lower fees and charges for their financial services than banks do. This is because credit unions are not-for-profit organisations that aim to put their consumers first and are not out to make as much money as possible but rather want to provide the best financial experience. Any earnings that are made go into running the credit union and then go back into improving the service for all.
- Better Saving Potentials – It doesn’t matter whether you’re in the US, the UK, or anywhere else in the world, the statistics show that credit unions will help you save more and make more on your money than traditional banks will. Credit unions simply offer better rates. This can, of course, vary depending on the credit union and banks you’re comparing, but generally, this is true across the board. For traditional banks in the UK, the average annual savings interest rate is around 1.39%, whereas for credit unions it’s between 2% – 3%.
- Lower Rates on Loans – The not-for-profit nature of credit unions allow them to offer lower interest rates on loans.
- A Member-Centric Service – Credit unions tend to offer a more member-centric approach to their products and service. This leads to a better customer experience for their members in most cases.
- The Management is Voted In – Hand in hand with the consideration above, credit union members can vote for the management they want. If you have a selection of potential candidates, you can simply select the one that best represents the direction you want the credit union to go. Of course, it’s the majority vote that decides the elected board of members, but the fact you get a vote towards this and, therefore, a certain degree of control over when it comes to having the service that you want.
- Community Investments Come as Standard – Due to the nature of credit unions being founded around a community, whether that’s a military organisation, a hospital, an employer, or a geographical community, the investments paid back into these communities are a big part of what makes credit unions so special. This way, the money keeps circulating within the communities, thus improving the lives directly and indirectly of the people who use the service. It’s a great way to build communities and create opportunities that might never have existed.
Are credit unions really better than banks?
While credit unions are often cheaper, easier, and more convenient than other banks, they aren’t necessarily better than banks. There is often no definitive best choice when it comes to credit unions vs banks. Many credit unions have lower savings interest rates than banks and higher loan interest rates than banks. While credit unions are a great option for those who are looking to save money and are cheaper, it’s also important to keep in mind that they aren’t necessarily better than banks.
There are a few reasons for this.
Firstly, banks are certainly more widespread and have lots of money invested in their services. When you’re with a bank, you might get access to a fully-functional mobile app, have branches you can drop into and visit all over the UK, and indeed the world, ATM access, and typically have full online banking tools. You might not have these features with credit unions, especially if it’s a smaller one.
That’s not to say that some credit unions don’t push the boat out. The CO-OP credit union has shared branches, over 5,600 of them across the US and access to over 54,000 ATMs that you can access for free. However, not all credit unions offer such a service. That being said, credit unions do have better fees, a diverse range of affordable credit services, a far better customer service experience, and banks have stricter policies when it comes to providing such services.
In short, there are pros and cons of both services, so it’s important you take time to look at your own financial situation, define what it is you want from your financial experience, and then decide accordingly. If you’re unsure, then it’s always going to be worth speaking with a financial advisor.
What are the disadvantages of a Credit Union?
The disadvantages of a credit union are:
- Exclusive Membership Requirements – As we’ve discussed throughout this guide, credit unions are founded around certain types of communities, meaning they only allow people within those communities to become members.
- Limited Locational Services – Due to the restrictive nature of a credit union, there are limited location-based services, such as ATMs and branches. Sure, this might not really matter too much these days with online banking and banking apps, but for consumers, it could be a deal-breaker.
- Some Service Restrictions – Despite the fact that credit unions typically provide a large variety of services, including personal loans, mortgage loans, home equity lines of credit, credit cards, checking accounts, savings accounts, retirement accounts, and student loans, many people will still require bank services for their everyday needs.
Is it good to save with a credit union?
Yes, it is good to save with a credit union as they generally offer better interest rates than those offered by banks. This can lead to higher growth of your savings and over the longer-term, as the interest compounds, you could see big differences in your balance as a result.
Is it hard to join a credit union?
Yes, it certainly can be. If you don’t meet the membership requirements for joining a credit union, there are not really any exceptions that will allow you to gain access to the services and experience. While this exclusivity makes credit unions so special, it can also irritate consumers who want to be members but can’t.
Fortunately, there are many different credit unions out there for many different people, so even if you find one that you can’t become a member of, then it’s certainly worth taking time to explore other credit unions that are out there and then seeing which you qualify for.
Are cashier’s checks accepted at credit unions?
Yes, the vast majority of credit unions will accept cashier checks in both the US and the UK, even smaller ones. Of course, there are some exceptions, and some credit unions may not be able to handle cashier check services.