What is a credit union?

Credit unions offer secure savings and low cost loans.

Credit unions are financial co-operatives, owned and run by and for the benefit of their members. They are authorised and regulated by the Financial Services Authority (www.fsa.gov.uk) – the same body that regulates banks and building societies. There are around 600 credit unions in the UK serving some 450,000 members.

Credit unions offer secure savings and low cost loans.

• The maximum amount of interest a credit union can charge under current law 26.8% APR (or 2% per month on the reducing balance). However many credit unions charge less than this.
• Members who save with the credit union are usually paid a dividend on their savings
• Members also benefit from free life insurance on their savings and loans.

Credit unions can offer a range of financial services including:

• junior savings accounts,
• savings accounts for special events (such as Christmas accounts),
• funeral expense plans and other insurance products .

Some credit unions may also provide accounts to accept benefit payments direct from the Department of Work and Pensions and Child Trust Funds for the investment of Government vouchers.

How do they work?

Credit unions work by using members' savings to create a pool of money from which loans can be provided to other members.

To be a member of a credit union you must share a 'common bond' with all the other members - for example, being employees of the same company or association. However, the most popular 'common bond' is through sharing a community - this is sometimes known as a 'live or work' common bond.

The trade association for credit unions in the UK is the Association of British Credit Unions Limited (ABCUL).