It's a big idea in the USA, but will the expansion of the credit union market become a real alternative to high street institutions within Britain?
A credit union is a financial co-operative that is owned and also controlled by its members. Through such unions, products like low interest loans, current accounts and child trust funds are available. The members of the union will share a common bond, such as the company they work for or the area they live. These members pool their money together to create these loans and interest payments. Interest is put back into the union as profit or possibly used to help developing businesses or even returned to the members.
Credit Unions are regulated by the FSA and each member has protection for the first £50k of their savings (under the FSCA).
There are now 18 Credit Unions (supported by the Department of Work and Pensions) offering current accounts, with 7 of those launched within the last fortnight. Chief Executive of the Association of British Credit Unions Limited (ABCUL), Mark Lyonette: "The government has recognised that those people who do not have a current account are at a disadvantage in society. For example, without a current account, you cannot benefit from the convenience and cost savings of direct debits.
"The Credit Union Current Account (CUCA) is enabling more and more people to access the benefits of the banking system, often for the first time, helping them to manage their money more effectively and preventing them from getting into debt so easily."
The CUCA was introduced in March 2007 and there are over 15,000 credit union members that hold an account. This, with the current economic climate, is expected to double in the next 12 months. Holders can use a debit card, set up direct debits and standing orders, however can not make use of an overdraft facility, although this is seen as a useful tool in debt management.
On top of the temptation of an overdraft being removed, these accounts are not held by city shareholders, so there is no chance of hard earned savings being gambled away. Credit can also be obtained at a more affordable rate compared to high street institutions.
Will cash strapped Britons start to turn away from the high street banks and building societies after seeing more rates slashed and top products withdrawn? Could the credit union be the vehicle to ride out the current economic storm?
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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