09 Aug How credit unions are beating big banks with better savings rates
Despite the recent base rate increase and a warning from Bank of England Governor Andrew Bailey, several big banks are still yet to raise their savings rates for customers.
Some of the best savings rates in the market are offered by credit unions – but what is a credit union and how are they able to offer such competitive rates?
Unlike traditional banks, credit unions operate as not-for-profit financial cooperatives. Everyone who takes out a savings product with a credit union becomes a member. Credit unions are committed to putting their members at the forefront of everything they do and supporting them with the tools they need to achieve their financial goals.
Historically, most credit unions haven’t offered set interest-rates on savings accounts, instead giving their members a share in any profit they make through an annual dividend. However, in recent years some of the larger credit unions have started to provide traditional interest-paying savings accounts to rival similar offerings from high-street banks.
Five key reasons why credit unions can provide better rates on savings than traditional banks:
Not-for-profit status: Credit unions are nonprofit financial cooperatives owned by members. Their status grants them certain tax benefits, allowing them to provide appealing savings rates for their members.
No shareholders: Traditional banks are often owned by shareholders who expect a return on their investment. This leads to a goal of maximising profit, which can be at odds with offering the best possible rates to their customers. On the other hand, credit unions are owned by their members and their mission is to support them, rather than generate value for external shareholders.
Cheaper operating costs: Credit unions are typically cheaper to run than traditional banks because they spend less on marketing campaigns and may have lower operational costs, such as fewer branches.
Regulatory advantages: Just like high-street banks, credit unions are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). However, their not-for-profit status, and cooperative structure, means they have different capital requirements than high-street banks. This can lower their capital costs so they can afford to offer better savings rates.
Government help: Because of the benefits they pass onto their members, some credit unions receive support through funding from local authorities.
Founder and CEO of credit union introducer My Community Finance, Tobias Gruber, said: “Joining a credit union has become simpler than ever. Changes in rules have let credit unions help a broader range of people and communities. This means more individuals can now meet the requirements to join, making the process of becoming a credit union member more inclusive and accessible.
“Those aiming to maximise the benefits of the current 15-year high-interest rates should strongly consider opening a savings account with a credit union to optimise their earnings”.
To join a credit union, follow these simple steps:
Find a credit union: You can search for your local credit union online or use My Community Finance to access the credit unions they work with.
Eligibility: Check if you meet the eligibility criteria – credit unions typically serve specific communities or groups, for example people living in a particular area, employees of certain companies, or members of certain organisations.
Membership application: Once you find a credit union you’re eligible to join, you’ll need to fill out a membership application.
Share deposit: Some credit unions may require you to make a small share deposit (usually a minimum amount, such as £1) to establish your membership. This share deposit makes you a part-owner of the credit union.
