Could a Credit Union help with my cash flow problems?
March 5, 2019
Credit unions offer a range of financial products including current accounts, savings accounts, and loans, and can be a good alternative to banks and building societies whilst also helping your cash flow.
There are credit unions all around the UK, almost 100 of them operating in Scotland. They’re not always widely advertised, however, and although some have websites you may need to search for a credit union near you via the Association of British Credit Unions Ltd (ABCUL).¹
So what exactly is a credit union, how do they work, and could joining one help you with your cash flow problems?
What is a credit union?
A credit union is a not-for-profit financial organisation run by its members purely for the benefit of its members, who typically share what is known as a ‘common bond.’ This common bond may be geographical location, or perhaps membership of a trade union or association, and it previously limited an individual’s eligibility to join.
Since 2012, however, membership is no longer restricted in this way, and credit union services are open to everyone.
How do credit unions work?
Money saved into a credit union is used to provide low-cost loans to its members, and to improve the union’s service provision so all members benefit. Credit unions are covered under the Financial Services Compensation Scheme (FSCS) up to a maximum of £85,000 for each individual, and are authorised and regulated by the Financial Services Authority (FSA).
So how could a credit union help with cash flow problems?
Credit unions – easing cash flow worries
Credit unions offer current accounts, savings accounts, and low interest loans, with current accounts often being a pared down version of those offered by the high street banks. There is typically no overdraft facility and no chequebook – just a debit card or cash card so you can access the money in your account.
You can have your wages paid in and set up direct debits and standing orders, which in essence is like a bank account, but the limitations in place with a credit union current account prevent you from getting into debt.
Advantages of credit unions
A prominent feature of credit unions when you’re struggling with cash flow is the low interest rate loans that are available. Although you’ll probably need save with the credit union for a while before being accepted for a loan, interest rates are far lower than those offered by banks, building societies, and payday lenders.
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