There is a third force in savings and loans that many people do not know about and even fewer use.
Yet the rates for savings can compare with the best offered by banks and building societies and the interest on loans can be among the cheapest there is – especially for borrowing small amounts short-term, a service that banks don’t offer.
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Credit unions – community based financial coops – have a long history.
The 429 in the UK (as in 2018), ranging from small, old fashioned organisations to larger businesses that could as easily be building societies, look after almost £1.4 billion of savings and have lent £1.5 billion to their members.
One reason they’re not better known is that they don’t have big budgets to advertise.
Another is that they come with restrictions. To save or borrow with a credit union, you need to show what is called a “common bond” with it. That can mean where you live or work, what your job is, or a society you belong to. Almost everyone can find a credit union to join, but not all offer great rates.
In the past, credit unions used to insist that members saved with them for a while before they could borrow. But nowadays many will lend first and invite you either to start saving later or to save a small amount on top of your repayments.
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However, very few will offer same day credit.
Payday loans can cost up to 1,260% APR – but they will give you a decision at once and pay the money within the hour.
Credit Unions take longer than that – some a lot longer – but will always be much cheaper. They can charge a maximum of 42.6% APR for smaller loans (and less, often a lot less, for other loans).
Even at 42.6%, this is often the best way to borrow small amounts short-term. For example, if you borrow £500 over six months, it can cost you just £555.
Savings rates with some credit unions are guaranteed and as good as they get, but others pay a dividend depending on their profits, so can be nothing.
Savings are protected up to £85,000 if the credit union goes bust.
You can find a credit union to join at findyourcreditunion.co.uk