Both banks and credit unions offer savings accounts, however they don’t all offer the same value for money. The amounts of interest which are paid on savings can vary considerably between organisations and accounts, and while most are quite low, savers can often get higher interest on their savings when they use a credit union than a bank.
Dividends And Interest
When a member has savings with their credit union, there are two kinds of income which may be received. Some credit unions pay dividends to their members, an amount which varies from year to year according to how successful the credit union has been over the previous 12 months, while other pay interest in the same way as a bank with an AER (Annual Equivalent Rate).
While until quite recently credit unions were prevented from paying any interest on members’ savings, and therefore the dividend system, which paid on average about 2-3% to the member once per year, was the only option, recently changes have meant that people who are interested in saving money with a credit union need to do their research before applying so that they are clear about the system. Most credit unions still operate on a dividend payment system rather than on an AER system, and in some cases the amount paid out as a dividend can be as high as 8% if the credit union has had an especially good year.
Interest Savings Accounts From Credit Unions
Although there are still fewer credit unions that offer savings accounts that pay interest rather than dividends, they do exist and some of them can offer very attractive rates when compared to those offered by high street banks. One recently introduced credit union savings account had an AER of 3%, higher than most products available from any high street bank, and certainly higher than any easy access or flexible savings account from traditional institutions.
Average Interest Rates On Savings From Banks
In general, savings interest rates from banks are very poor at the moment and have been dropping over the last few years. The best interest rates on savings are associated with accounts that have a fixed bond term without any easy access, meaning that the money in the account is stuck for up to five years without any way of withdrawing it.
Clearly, a credit union offers much better value for money than the bank savings accounts which offer the lowest rates of interest, and as an added benefit all of your money is equally well protected and insured.