Credit unions are community-based savings and loan cooperatives.
The idea is that members pool their savings to lend at affordable rates to each other, as and when required.
Members can also earn money on their savings, which is normally paid annually and is called a "dividend". The amount of any dividend depends on the profit (if any) made by the credit union over the year.
The advantage of credit unions is that they are run by members, for members - rather than run for the benefit of shareholders.
This means they can offer competitive rates on loans, and provide services similar to banks - to those that may not be able to open a bank account.
To apply to join a credit union, you need what is described as a "common bond".
This would normally be one of the following:
- You work or live in the same area.
- You work for the same employer.
- Belonging to the same group or association, for example, a trade union, church or community organisation.
However, the law also allows for a more flexible definition of a "common bond". So for example, if you live outside the area, but your employer has a link to the credit union.
Family members of those with a "common bond" can also join the same credit union if they live at the same address.
Like banks and building societies, credit unions are covered by the Financial Services Compensation Scheme (FSCS), so money put into a credit union is protected.
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