Forget banks and join credit unions, middle-classes urged
The Telegraph, By Jessica Winch
Membership of credit unions is growing at its fastest rate in at least a decade as savers search for better deals.
A Cabinet minister has urged middle-class savers and borrowers to cast aside their prejudices and join credit unions.
These non-profit organisations have long been regarded as the preserve of low-paid families who would otherwise struggle to obtain a mortgage or bank account.
But the Government wants to change that image. Iain Duncan Smith, the Work and Pensions Secretary, told The Telegraph: "Credit unions can offer some of the best rates on the market for loans and dividends for your savings. But saving with a credit union can provide more than a financial return, as you will be investing in your local community.
"While credit unions help many people on low incomes to build savings and access affordable loans, their services are open to all. I’d encourage everyone to look at the accounts credit unions have on offer."
Mr Duncan Smith himself joined the London Mutual Credit Union last month, while membership across the UK is growing at its fastest in a decade. Credit unions, which operate like mutuals in lending out members’ money, expect to gain 20pc more members this year, compared with 8pc a year on average since 2004. The Department for Work and Pensions will invest £38m over the next two years in the union network.
Mark Lyonette, chief executive of the Association of British Credit Unions (Abcul), said there is a growing appeal to the middle classes.
He said: "Credit union membership topped one million in June 2013, an increase of 100,000 in just a year and there is plenty of activity in the sector."
The rates of return are certainly attractive, given the low interest rates on offer in the high street. For example, the London Mutual Credit Union (LMCU), which also counts the Duchess of Cornwall among its members, offers an instant-access Isa paying 3pc interest to existing members. The best rate on an easy-access Isa on the wider market pays just 1.8pc.
Lucky Chandrasekera, chief executive of LMCU, said: "We have significantly broadened our reach this year as people turn to credit unions for everyday banking."
Glasgow Credit Union also grew 10pc to 32,700 members.
Not everyone can join any credit union. Members must have a "common bond", usually the place they work or the area where they live. Credit unions typically pay dividends on savings, which vary from 0pc to 8pc depending on the organisation’s performance that year. So returns are not guaranteed.
Alfred Taylor, a retired police inspector and coroner’s officer, joined the Police Credit Union through West Midlands Police in the Eighties.
Mr Taylor, 69, from Birmingham, said it was a way to borrow money at better rates than the bank and save through your wages. He retired from the police force in 1996 but remained a member of the credit union.
"It is a choice rather than a necessity," he said. "I would get a worse rate if I moved elsewhere – the headline rate always looks good but before long it disappears."
Stuart Strugnell, an IT programmer, joined the LMCU five years ago. The 51-year-old, who saves about 10pc of his salary with the union each month, said: "I like that it is ethical, that it pays back into the community. As long as they are competitive that will keep me interested."
Poorly run credit unions are liable to go bust – the Financial Services Compensation Scheme (FSCS) paid out to customers of eight failed unions in 2013 – but savings are protected up to £85,000 per person and compensation is paid in seven days.
Andrew Hagger, founder of financial researchers MoneyComms.co.uk, said online credit union My Community Bank offered some attractive savings rates. He highlighted the 2.15pc one-year bond, which is better than the 1.95pc mainstream best-buy offered from Shawbrook Bank. However, only residents of the London borough of Brent and people who support Britain’s south Asian community are eligible for membership.