Myth-buster: common misconceptions about borrowing and saving with credit unions
The highest increase in consumer debt in over 18 years means thousands of people are turning to credit unions to borrow money in the UK.
The Bank of England’s base rate increases has also got savers looking for where to move their money, as the biggest high street banks fail to pass on every base rate rise.
Founder and CEO of mycommunityfinance.co.uk, Tobias Gruber, said: “The finance industry has taken advantage of people for too long. The cost of living crisis has put household finances in the spotlight, and the nation is rightly demanding better. I believe credit unions are growing in popularity because they put people first – not profits.
“Credit unions are commonly misunderstood, but they’re a great ethical way for people to get higher interest rates on their savings and lower rates of interest on their borrowing.”
In this guest article, the team at My Community Finance shares the most common misconceptions surrounding credit unions and the truth behind them.
Fiction: Credit union rates aren’t as good as high street banks.
Fact: Because credit unions are not-for-profit organisations, they can provide some of the most competitive rates in the market. This includes higher interest rates for savers and relatively low-interest rates for borrowers, particularly for those who struggle to access traditional credit.
Fiction: Credit unions aren’t as safe as banks.
Fact: Credit unions are regulated by the Financial Conduct Authority and the Prudential Regulation Authority, meaning you can be confident your savings are protected up to £85,000 via the FSCS scheme.
Fiction: You can only borrow small sums of money from a credit union.
Fact: The maximum amount that can be borrowed from a credit union will vary, but in some cases, customers may be able to borrow up to £25,000. The exact amount depends on your personal circumstances.
Fiction: To join a credit union, you must be employed in a specific profession.
Fact: Credit unions require their members to have something in common, but this can cover a range of criteria; e.g. living or working in the same area, working in similar industries, or belonging to the same church, trade union, or other association.
Fiction: Credit unions are charities.
Fact: It’s true that credit unions are not-for-profit organisations, but they’re not charities. The money credit unions make is used to provide better rates for their savers and borrowers or re-invested back into the union to improve their services further and increase the number of people they can support.
Fiction: There are only a small number of credit unions in the UK.
Fact: There are more than 250 credit unions across the UK, some with thousands of members. There are also over 87,000 credit unions globally in over 118 countries, serving over 393 million members and overseeing over $3.4trn (£2.7trn) in assets. In the US credit unions makeup 30-40% of all lending.
Fiction: Credit unions are only for people with a poor credit history.
Fact: It doesn’t matter what your credit history is like to become a saver with a credit union, and because they often have more flexible lending criteria than banks, credit unions can help borrowers with various credit scores, including those who may have trouble obtaining credit from traditional sources.