Are credit union interest rates more competitive? - InterestRate.co.uk

Are credit union interest rates more competitive?

A credit union is an organisation where members can save money or take out loans. Credit unions operate on a non-profit basis, allowing them to offer and charge competitive interest rates. We can earn interest by depositing money in credit union savings accounts and enjoy the Financial Services Compensation Scheme protection limit of £85,000.

If you need a short-term loan, a credit union will offer a better rate than your ordinary payday loan. However, some credit unions may offer fewer options, and higher interest rates may make them unsuitable if you need a long-term loan.

The rates offered by credit unions attract many people in Britain. Statistics highlight that there are 246 credit unions located across England, Wales, and Scotland, which over 1.44 million individuals are using. They are also available in Northern Ireland.

How do credit unions work?

Credit unions are structured differently from banks and are operated by individuals belonging to a members pool. The members of a credit union pool their money, lend it to each other at market-competitive interest, and pay returns on savings.

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Credit unions can vary in size but are always owned and operated by the members. As opposed to giving profits to external shareholders or other lenders, credit unions use their earnings to improve their services and reward members. The activities of a credit union are regulated by the Prudential Regulation Authority (PDA).

Credit union members typically work for the same employer, are part of the same trade union, or live in the same area. When it comes to credit union savings, you can deposit money in various ways, including:

  • Debit deposits.
  • Local collection points.
  • Deductions from wages. 

What do you need to know about credit union savings accounts?

Credit union savings accounts can be a feasible investment option to deposit money and earn interest. Credit unions are licensed institutions, and saving with a credit union is similar to saving in a bank.

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When we deposit funds in credit union savings accounts, the credit union invests it. Your earnings from a credit union savings account are either based on a fixed interest rate or a yearly dividend. However, this may vary among credit unions and savings accounts. Some credit unions also offer children’s savings accounts, ISAs, and mortgages

You may not earn any money if the credit union doesn’t profit. However, investments in credit union savings accounts are subject to protection under the Financial Services Compensation Scheme (FSCS) with a limit of £85,000.

Can you take a personal loan from a credit union?

Borrowing money from a credit union loan is similar to doing so from a bank. When we take loans, we must repay the money and additional interest. As with banks, the representative APR on these loans may differ from the loan you are offered, and the lender only needs to offer the advertised rate to at least 51% of people.

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However, loans cannot have an interest rate of over 3% per month. For illustrative purposes, if a member takes a loan of £500 for a holiday or to fund improvements and plans to repay it in 3 months, they will be paying interest of around £30 on that loan. If the same person were to take a typical payday loan for the same amount, they would pay £35.92 in interest.

Do credit unions offer better interest rates? 

Credit can offer competitive interest rates on both savings and borrowing since they don’t operate for profit. Credit unions are available throughout Great Britain and Northern Ireland and can be a feasible saving and financial assistance option. Before choosing a credit union, check if it’s registered with the Financial Conduct Authority.

Consider your options before using a credit union and, if necessary, take professional financial advice.

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