What is a credit union?
A credit union is a financial institution that is run and owned by its members to offer them financial services.
Where have you heard about credit unions?
Credit unions are often suggested as a cheaper alternative to payday loans in the financial pages. Depending on where you live, you could also pass a credit union branch on your local high street.
What you need to know about credit unions.
A credit union is a mutual organisation – run for the benefit of its members. They can serve particular geographical communities, or trade unions, faith groups and other organisations can also set up credit unions to benefit their members. Each credit union will set out who is able to join in their rules.
The aim of a credit union is to best serve their members, not to make profits, unlike traditional banks. Members may be offered lower rates on borrowing. Typically they would offer savings and loans, but they may also offer credit cards, prepaid debit cards, insurance and more.
As credit unions are nonprofit, they are exempt from paying corporate income tax on earning, and they only need to create earning that covers their daily operations, so they have smaller operating margins than banks. However, there are disadvantages including the reduced number of physical sites for customers to visit and customer choice of products is more limited when compared to the banks.
The first credit unions were set up in the 1850s-60s in Germany and the movement has spread to around 100 countries round the world.
Find out more about credit unions.
See how credit unions compare with other kinds of financial organisations on the World Council for Credit Unions website link to http://www.woccu.org/about/creditunion.
Microfinance is an alternative to credit unions in some places. Read about microfinance.