Credit Unions – All You Need To Know
The earliest credit unions were conceived in Europe during the 19th century as a natural part of the cooperative movement which was emerging at the time. The first known cooperative credit union organisation was formed in Rochdale, UK, in 1844. Known as the Rochdale Society of Equitable Pioneers, this group, formed from local workers, first pooled a pound from every member in order to open a cooperative store which sold sugar, butter, flour, candles and oatmeal.
This then expanded into the concept of pooling the members’ money so that credit could be offered to individual members. Officially, the first dedicated credit unions were established in 1949 in Germany with the ambition of protecting poor workers in urban areas from loan sharks.
What Is A Credit Union?
A credit union runs by the motto “run by members for members”. As a type of co-operative they are not-for-profit organisations which are set up by groups of people that have a common bond. The rules of membership could dictate that the common bond between members could be their:
- Trade Union
Who Can Join A Credit Union?
It’s only possible to become a member of a credit union when you meet the eligibility criteria i.e. you have a bond with the members. Although the rules were changed back in 2012 to allow credit units to offer membership to a wider group of people, eligibility criteria remains at the credit unions’ discretion.
How Do You Join A Credit Union?
If you want to join a credit union, you have to call or visit the credit union to find out about the eligibility criteria and joining process. Some credit unions have websites with the possibility to apply for membership online.
What Types Of Financial Services Are Offered?
There are, broadly speaking, three financial product types offered by credit unions:
- Current accounts – these are basic accounts with no chequebooks or overdrafts although they do offer debit cards which can be used at some ATMs. These accounts also offer the option of setting up standing orders and direct debits and to arrange for benefits, pensions and wages to be paid in.
- Savings accounts – these allow money deposited to be lent to other credit union members. They allow savers to save as much as they want when they want. Deposits may be made by direct debit or at collection points and in branches.
- Loans– these are only offered to existing members. Credit unions lend both large and small amounts at varying interest rates, although these are capped at 42.6% APR. There are no additional charges for repaying early and secured loans can be arranged for longer terms and larger amounts. Should you die before repaying the loan it will be wiped out.
Credit unions have certainly been around for a long time, and although they are still not as well known among members of the public as the big commercial banks, they are still popular in local communities where they serve a vital purpose for members by offering loans at affordable and fair rates and by being a suitable and more cost effective alternative to payday lenders and loan sharks.
Why Use A Credit Union?
There are several advantages to being a credit union member:
- You’re not a customer, you’re a member. You can therefore enjoy outstanding service as well as dividends and voting rights.
- You will benefit from lower interest rates on loans and often a high rate of interest on deposits.
- Fees are lower at credit unions than at banks.
- Credit unions are built to serve their local communities and therefore your needs will be well provided for.
Are There Any Disadvantages?
Although credit unions offer many benefits to their members, there are a few drawbacks including:
- In order to benefit from what credit unions offer you need to be a member. This will cost you a small fee as well as the opening deposit requirement.
- You need to meet the eligibility criteria in order to join.
- There are limited numbers of ATMs and branches, especially if you are a member of a small community-based credit union which is only in your local area.
- Not every credit union is insured.
- There are fewer options and services to choose from with credit unions when compared to banks. Not all credit unions can handle large loans like mortgages for example.
- Commercial banks have a lot of money to sink into the latest technology and this means mobile deposits, banking apps and fully functioning websites are the norm. This is not always the case with credit unions as there is less money to invest in advances and therefore you may not be able to access your account online, use a banking app to check your balance or make mobile deposits.