The popularity of credit unions is on the rise, with over two million members in the UK. They aren’t as widely publicised as the traditional banks so you might not know much about them. We’re here to cover what they are and why one could be a good fit for you.
What is a credit union?
A credit union is a financial institution where you can save your money and take out loans, much like a bank or building society. However, unlike the other institutions, they are not-for-profit, and are owned and run by the members of the union itself.
How do credit unions work?
Just like a retail bank, it uses your money. When you put your money into an account, it’s used to lend to others and invest. The credit union makes its money from the interest paid on loans and the returns on investments.
How are credit unions different from a retail bank?
While you’d receive a debit card with a standard bank account, a credit union is a little different. You can take money from your account over the counter at branches and other locations such as the Post Office, but you can’t spend directly on your card in shops. That’s why many offer transactional accounts, like Vox Money.
Attaching a Vox Money Visa Debit Card to your account allows you to load up your money and spend in shops or withdraw cash from an ATM without the need to visit the credit union branch.
How do I join a credit union?
Credit unions are a little more exclusive than banks with who they allow to be members. You must have something in common with the other members. This could be your area, industry, or even a group you’re part of.
Find your nearest credit union at findyourcreditunion.co.uk.
What are the benefits of using a credit union?
There are many benefits of joining a credit union which mostly lie in their clear difference to retail banks. Here are the key ones:
The profits go into your pocket
Have you ever read a blood-boiling story about bankers receiving a six-figure bonus after taking a taxpayer bailout? You won’t hear anything of the sort about a credit union. As they are member-owned, all profits are poured back into the accounts of members. This comes in many forms; through dividends, lower interest rates on loans and higher interest on deposits and savings.
Credit unions are more ethical
As a for-profit business, most people don’t realise that banks aren’t there to store your money, they’re there to use it to create profit how they choose and you have no input. In fact, you may be horrified to learn that in the past two years, the UK’s top banks have invested over £30 billion in companies that build nuclear weapons. Scary, right?
As a member of a credit union, your voice matters. As well as electing the volunteers on the board of directors (or running to be one), you have the power to ensure the management of the union is in line with how you want it to be. That includes having a say in the investments made.
They’re more flexible to your needs
Credit unions are rooted in community spirit. They were set up in the late 1800s by small communities who wanted to ensure their poor neighbours wouldn’t have to visit loan sharks to put food on the table.
Our needs are a little more expensive than £10 here and there, but if you’re looking for a smaller, short term loan for a car or home improvements and put off by the horror stories of payday loan companies, a credit union is a much better alternative.
While retail banks deal in larger loans such as mortgages, credit unions are much more likely to approve a smaller loan for a shorter period of time.
There are no credit checks
As most credit unions don’t offer overdrafts, there is no credit check needed when opening an account with one. If you have a poor credit history, this may be appealing to you as retail banks are more limited when it comes to no credit check bank accounts.
If you do have poor credit, there are many more reasons why you should consider a credit union account. As a member-focused organisation, they offer people-first services such as budgeting support, which could help you on your way to improving your credit score.
While there are no credit checks for opening an account, you will have to undergo checks if you plan to take out a loan; the same as any borrowing service.
They’re just as safe as banks
Just like a bank, your money is protected by the Financial Conduct Authority (FCA) and the Financial Services Compensation Scheme (FSCS) if anything happens to your credit union.
A credit union offers all of the benefits of a bank and more! To find out more about our range of Vox Money accounts and how they can help you save and spend smarter, click here!