SUMMARY
With rising interest rates and an ever increasing cost of living, credit unions may offer a more attractive means of raising revenue than banks or credit cards. And all you need to do is become a member! Surely it can't be that easy..

Credit Unions: The Cheaper Alternative?

Author: Adrian Taylor

The standard means of obtaining credit has become so widespread

A credit union is a profit sharing , financial co-operative run democratically ( term assurance ) by the members of the union itself. And by offering a more financially attractive alternative to the standard products offered by banks, the popularity of the credit union movement in the UK is increasing.

As maximizing profits is not the key goal for a credit union, such an organisation has three main aims:

• To encourage its members to save regularly
• To provide loans and financial assistance to its members at the lowest rates of interest possible
• To offer its members help and support, if required, in the management of their financial affairs

To enable you to take advantage of the kind of services that a credit union offers, all you have to do is become a member. Not that this is quite as straightforward as you might imagine.

The key to becoming a member of a credit union is what is known as the 'common bond'. The common bond determines whether or not you will be accepted as a ( car insurance quotes ) member of a credit union and this could be that you reside in a specified area, work for a particular employer or within a particular trade, or that you are a member of a certain club or association.

Because of this, credit unions welcome everybody from within the common ( mortgage quotes ) bond regardless of income, employment status or age and also - and perhaps more crucially, regardless of your credit rating or if you are unable to save a regular amount. So whether you have a poor credit rating or not you can still become a member of a credit union and save as little or as much as you like.

Irregular savers are just as welcome as those people who are able to save money on a regular basis and usually all members, regardless of the amount saved, are paid the same percentage annual dividend on their savings. Whilst generally paid at 2 to 3%, this can be as much as 8% depending on profits.

Using the sum of all members' savings, the credit union is then able to provide low cost financial services to its members. Although each credit union (as all mutual societies) must ensure that enough money is set aside to ensure financial stability, all other profits are used to provide the lowest interest rates for members' loans whilst returning an attractive rate of interest for its savers.

With an attractive 6% being the typical interest rate on loan repayments (which normally includes insurance at no direct cost), as the rate of interest that a credit union can charge is capped at 1% a month the most interest you would have to pay on a loan of £100 for example would be only £1 a month!

Insofar as government regulation is concerned, the Credit Unions Act 1979 remains the key legislation that regulates the activities of credit unions. As well as setting out the objectives of an individual credit union, it also mandates that all accounts are independently audited on an annual basis and that full insurance is put in place against fraud and theft.

Also, a given credit union cannot lend all the money saved as loans to its members and cannot invest any residual money in any ventures above a certain level of risk. To reduce the risk of bad investment and to ensure that all savers' money is not tied up for long periods of time, any money in the control of the credit union must be put into bank deposit accounts, government bonds or other reliable investments.

Overall, credit unions offer an easy and convenient way to save and borrow and can provide a focal point for a community by bringing people together, to both help each other and to help the community as a whole. A credit union can also help to revive the economy of a local area as more money stays within the community which has a knock on effect on income for local businesses.

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