Rock-bottom interest rates mean savers have seen their returns dwindle in recent years.
Savers looking for an alternative might want to consider a credit union, which sometimes offer better rates.
What is a credit union?
A credit union is a non-profit making co-operative controlled by its members who pool their money together and lend to one another. Once dubbed the ‘poor man’s bank’, their popularity is growing with the number of members hitting two million for the first time this year, according to the Bank of England.
There are more than 380 credit unions in the UK. They operate on the principle of helping people and often have savings rates better than those offered by high street banks.
Like banks, credit unions accept deposits, provide loans and mortgages as well as a host of other financial services. However, unlike banks, credit unions don’t have to pay shareholders, so the cash can be used to reward members.
They are authorised and regulated by the Financial Conduct Authority, and up to £85,000 of your money is covered by the Financial Services Compensation Scheme.
Alternative to major lenders
Credit unions provide a useful alternative for people who have trouble getting credit from major lenders. While some unions offer a fixed rate on savings many still pay a yearly dividend, which is how profits are shared with members.
Andrew Hagger, a personal finance expert at Moneycomms, says: “Unfortunately, many people probably aren’t aware they have one in their local area. They are all individual providers offering different products, so as a consumer you have to do a bit of digging around.”
As an example, My Community Bank is currently offering very attractive rates. Its one- and two-year fixed-rate bonds both pay 2.20% AER, while its three-year fixed-rate bond pays 2.25% AER. The minimum you need to open an account, which needs to be opened online, is £1,000 and the maximum you can save is £50,000.
There are other restrictions. As it is a fixed-term bond, you can’t withdraw the funds early. You must also have a job in what the Office for National Statistics designates a ‘minor’ occupation. This includes nurses, teachers and engineers. A full list is on the My Community Bank website.
“Many people probably don’t realise they have a credit union in their area”
Not just for savings
Credit unions are also seen as a cheaper alternative to payday lenders and sometimes offer better rates than high street lenders.
However, some credit unions may require you to have been with them a certain amount of time before they will lend to you. Be cautious, though, as rates can start from as low as 6% but can go as high as 43%.
My Community Bank, for example, offers loans from £1,500 to £15,000 over one to five years at an APR of between 5.9% and 42.6%, depending on your circumstances.
Meanwhile, credit union retailCURe, which launched last year, offer interest rates ranging from 7.4% APR to 26.8% APR on loans from £250 to £10,000.
You can find out more about local credit unions at Findyourcreditunion.co.uk or you can contact the Association of British Credit Unions (Abcul.org).
Note: Rates are correct as of 20 November 2018.
retailCURe Easy Access Savings Account
RetailCURe’s savings account pays 1% AER as well as the annual dividend. You can access your account online or with the mobile app and deposit up to a maximum of £15,000. In order to qualify for the account, you have to work in retail. You can withdraw money whenever you want by transferring electronically to a nominated account.