Two credit unions have failed since the beginning of this year, with the Financial Services Compensation Scheme (FSCS) stepping in to pay out almost 2,700 depositors with North East Scotland Credit Union around £1.1mn, this week.
Earlier in February, around 5,000 members of the Essex Savers credit union were also compensated by FSCS for around £1.7mn, after it went into administration.
The majority of savers in both unions were automatically eligible for FSCS compensation on deposit amounts up to the £85,000 limit, rising to £170,000 for joint accounts, so they did not have to worry about losing their savings. Learn more about limits of protection here.
Credit unions are an important way for people to save – and for others in a community to borrow. If you are already a credit union member or are thinking about joining one, it’s worth understanding how this protection works and how deposits are protected the same as UK banks and building societies by FSCS.
What are credit unions?
Credit unions are local lending and savings co-operatives. In a credit union, a community of savers, usually in a town, city or county, get together to step in when others in their area need finance.
Credit unions are owned by their members and operate in members’ interests, a bit like building societies, and can be a vital, affordable option for borrowers who are looking to avoid high-interest payday loans but might struggle to obtain loans from the big high street banks.
There are around 305 credit unions across England, Scotland and Wales.
They are well used and valued by their members, with nearly 1.3mn people using credit unions and total assets of £1.5bn. Total loans made in the year to June 2017 were £803mn, with £1.25bn in deposits, both up 6 per cent over the year, according to the Prudential Regulation Authority.
Why would I choose a credit union rather than a bank for my savings?
Credit unions directly serve your local community, so you know it is people in your area or workplace benefiting, not shareholders. Savings plans are usually flexible, with weekly or monthly plans on offer. In addition to an interest rate, which is usually on a par with that on offer from the banks, you might also receive a dividend from any profits once a year.
This can be 0 per cent, but it could also be as much as 8 per cent, according to the Association of British Credit Unions Limited (ABCUL). Some credit unions also offer life insurance at no extra cost, which means that on the death of a member, their savings can be doubled by the insurance and paid to whoever the member chooses.
Is my money safe in a credit union?
Some of the biggest and most established credit unions have been operating for decades. However, things do go wrong from time to time, and FSCS deals with several credit union failures every year.
As deposits held with credit unions are protected by FSCS up to the deposit limit of £85,000 (if savings are held jointly, the limit is doubled), any savings you have up to the limit will be automatically compensated.
So as long as you don’t have more than £85,000 in a single account or £170,000 in a jointly-named account, you won’t lose out.
How do I get my money back if my credit union fails?
Credit unions keep a record of all of their savers personal and account details. This list is passed on to FSCS at the time of failure. The majority of depositors in this position should receive their money back as a cheque within seven days.
If your deposit is worth £1,000 or less, you will receive a letter, which will allow you to get the cash over the counter at your local Post Office.
Some cases of higher value deposits are not straightforward to process. In such cases, compensation is made, but within a few weeks, rather than the normal 7-day period.
FSCS has a useful Q&A here.
If you are interested in saving with, or borrowing from, a credit union, follow these links for more information:
Find your credit union - www.findyourcreditunion.co.uk/
The Association of British Credit Unions Ltd (ABCUL) - www.abcul.org/home