Why UK Citizens Are Choosing Credit Unions Over Traditional Banks?
Credit unions are gaining rapid popularity in the UK due to their community-focused approach and accessible financial services. The country has about 250 credit unions1, serving 2.1 million customers. While credit unions offer similar financial services to traditional banks and financial institutions, they offer lower fees and higher returns on loans and savings, making them an attractive banking alternative.
But that’s not all. Credit unions offer a host of other benefits to their members, making them a popular choice in the UK. In this article, we’ll delve into the reasons behind their popularity and understand how these not-for-profit organisations are meeting the evolving needs of UK citizens.
What are Credit Unions?
Credit unions are financial cooperatives owned and run by their members. They are non-profit organisations offering a wide range of banking services, including savings, loans, and mortgages. Unlike traditional banks and financial institutions that are profit-oriented, credit unions aim to serve their members. They reinvest profits into the organisation to benefit members through dividends and attractive interest rates on loans.
UK credit unions are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). These regulatory bodies ensure the credit union abides by all regulations and maintains transparency in its operations to safeguard members’ money. Moreover, credit unions often run financial education programs to educate their members on critical financial concepts and empower them to manage their finances confidently.
Why Credit Unions Are Popular in the UK?
Credit unions are gaining massive popularity among the UK’s working-class communities. Here are some key reasons driving their demand:
1. Personalised Services
A big reason UK banks are shifting to credit unions from large banks is the personalised services they offer. With credit unions, members are part owners of the organisation, meaning their needs are placed above generating profits. This allows for a more personalised approach to customer service. Moreover, credit unions offer flexible and tailored solutions to meet their members’ diverse needs.
They are willing to extend credit to members who may not meet the eligibility criteria of big banks. This makes credit unions ideal for customers with lower incomes or inadequate credit histories. Since credit unions are operated by members, they often take the time to build relationships and provide personalised advice and financial guidance2.
2. Lower Fees
Another reason driving the popularity of credit unions in the UK is lower fees on loans and services compared to traditional banks. This is because credit unions prioritise serving their members over maximising profits. As such, they invest the profits back into the organisation translating into lower fees for members. This not only makes financial services more accessible but also enables members to save more in the long run.
According to statistics, a five-year CD for credit unions is 0.76% instead of only 0.63% for banks3. Moreover, credit unions have more transparent processes, which means members are aware of all associated fees right from the beginning. This transparency further strengthens their trust in the union.
3. Community-Oriented
Credit unions in the UK adopt a community-first approach, prioritising the well-being of the community they serve. This can be another reason UK citizens choose credit unions over traditional banks. Since credit unions are focused on helping members, they promote a strong sense of belonging and financial inclusion to support the local economy. They extend financial aid to individuals and businesses from different backgrounds, making financial services more accessible than banks.
Moreover, every decision is made with the best interests of the members in mind, building relationships. As a result, credit unions often have loyal members who take pride in uplifting the community.
How Do Credit Unions Work?
Credit unions are member-owned, non-profit cooperatives established to address their members’ financial needs. The union membership is often based on shared characteristics like living in the same state, working for the same employer, or being associated with the same organisation4.
When you join a credit union, you typically open a savings account and deposit money to become a member. Credit unions work like banks and financial unions, using members’ deposits to fund loans for other members. Since they follow a non-profit model, they are able to offer better terms and services, such as lower loan interest rates and higher savings returns. Additionally, credit unions often reinvest the profits back into the organisation, benefitting members in the form of dividends on their deposits.
Serving over 2.1 million members in the UK, credit unions are increasingly popular among citizens for conducting banking activities. With a community-focused approach, lower fees, and personalised services, credit unions offer a wide variety of financial services tailored to the distinct needs of their members. They prioritise community well-being and offer lower interest rates on loans and better returns on savings.
Moreover, their dedication to transparency and ethical practices is another key reason behind their popularity among UK citizens seeking a more meaningful banking experience.
References
1https://www.mycommunityfinance.co.uk/guides/credit-unions-fact-vs-fiction-setting-the-record-straight
2https://creditunion.co.uk/why-credit-union-loans-beat-other-types-of-lenders/
3https://abcfinance.co.uk/credit-unions-vs-banks/
4https://www.experian.com/blogs/ask-experian/what-is-a-credit-union/
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