A credit union is a community who want to help people manage their finances and save money. Credit unions first started in the 1960s and have continued to grow in popularity due to the help they offer and the availability across the country.
A credit union is a member-run service and it’s a not-for-profit organisation. This means, unlike a bank, a credit union doesn’t aim to profit off its members. The money it makes goes straight towards covering the running costs of providing the service and any residual profit will be shared among its members in the form of yearly dividends.
The main aim of a credit union is to aid people financially by providing the skills and awareness that you need to make more responsible financial decisions – be it saving money, managing your day-to-day expenditure or even a small loan to help in an emergency situation.
Credit unions are either local to the area they operate in or associated by a trade or industry. For example, if you lived in London, you wouldn’t be able to join a credit union in Manchester. However, the local aspect of credit unions is part of what makes them unique. Some of the larger credit unions will have branches you can visit any day of the week, whereas smaller credit unions might have one weekly meeting in the local town hall.
Generally, you will have to pay into the savings account every month – this can be by direct debit, local collection points or it can even be deducted directly from your wages – and then you will earn interest on the amount you save. You receive a dividend each year from the credit union as any profits are split between members, not paid out to external shareholders or investors, and the dividend amount will be based on how much you’ve saved that year: the more you save, the larger your share of any dividends will be.
Unlike some bank operated savings accounts, you can usually withdraw your saved cash at any time either by visiting your local credit union or by transferring the money into your current account. It would be worth remembering, however, that savings should only be used in emergency circumstances or to pay for the thing that you were saving up for. Having savings helps protect you against future financial difficulty so it’s always good to bear in mind that an unexpected payment could crop up at any moment and having some financial security will help mitigate the risk of a cashflow shortfall.
As part of the service, most credit unions will offer loan products to its members. Larger credit unions may be able to offer mortgages, but most will provide basic small loans for a few hundred or maybe even a few thousand pounds. Additionally, credit unions might be able to lend to people who find themselves financially excluded from mainstream credit services, making borrowing an accessible option for all its members.
If you are eligible to join a credit union, you become a member of a community with a common goal. This in itself can motivate people to get on track with their finances. To join a credit union, you simply need to use the credit union finder and apply with the one that best suits you. Before applying however, you should check the terms and conditions of your specific credit union and if there are any restrictions on their services that are uncommon among most credit unions, such as withdrawal charges on your savings account or minimum savings payments each month. Like you would with any bank or financial services organisation, make sure you do your research.
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