Credit unions are people-oriented. Thanks to our democratic business model, Metro Moneywise always works towards the best outcome for our members. When people save with us, we do our best to help them make the most of their savings.
So, how does saving with a credit union work? Is it the same as saving with a bank? Find out here.
What is a credit union savings account?
Just like banks on the high street, credit unions have accounts. You can pay money into your account, have wages paid in, transfer money to other people, and draw it out. In fact, there’s hardly anything you can do with a bank account that you can’t do with a credit union account.
Here’s all the things you can do with a credit union savings account:
- Pay in cheques.
- Withdraw money when you’re in branch.
- Pay in cash directly from other bank accounts.
- Have your wages paid in directly by your employer.
- Go into the credit union branch and pay in money directly.
- Make banking decisions over the phone with a representative.
- Pay bills directly to the provider by direct debit or standing order.
- Have benefits, pensions, and tax credits paid in directly by DWP.
- Check your balance in the branch, over the phone, online, or on an app.
- Transfer money to other bank accounts and people online or through an app.
Today, most credit unions have online portals that allow you do online banking. Metro Moneywise even has a members’ app. You can also access your account in the credit union’s branch and other places like post offices and PayPoints in shops. In some cases, you might find you can access your credit union account in more places than you can a bank account.
The credit union may also supply you with a card that you can use to make payments from your account.
Do you have to pay for a savings account?
Most credit unions ask for an annual membership fee which goes towards the running costs of the organisation. Membership fees aren’t usually high. Metro Moneywise’s fee is £3.50 a year.
Because credit unions are not-for-profit, you know 100% of your membership fee is going towards keeping your credit union running.
How does saving with a credit union work?
When you open a savings account with a credit union, you interact with it as if it were a current account or savings account in a bank. But behind the scenes, a bank account is treated differently from a credit union account.
Banks lend the money in your savings account to
- Other banks to increase their funds.
- Businesses that apply to take out loans.
- Other bank account holders who take out loans.
Credit union savings are different because they only lend money in your savings account to other credit union members. When members pay back the loans, they also pay interest on those loans. This can be described as ‘profit’, but it’s not the actual business that profits from this interest, unlike banks.
First, the interest gained is used to sustain the running of the credit union. This involves costs like building running and wages. The rest of the interest earned on savings throughout the year is paid back to members at the end of the year. This is called a dividend. Dividends are essentially the profits a credit union makes. Because credit unions are not-for-profit, these profits belong to the members (who own the credit union).
Dividends are paid before tax, so it’s important to declare tax on any earnings if you need to. An advisor at your credit union can help you determine whether this applies to you and what you need to do.
An annual dividend depends on how much money the credit union makes in the year, so you won’t know how much you have earned in dividends until the end of the year.
Credit union dividend rates can be much higher than those you get at high street banks. Usually, they are 1-3% but can be as high as 8% or as low as 0%.
Most credit unions will allow you to withdraw money from your savings whenever you want. There are only some situations that might stop this from happening:
- If your savings are currently secured against a loan.
- If your withdrawal takes your balance below the par value of your share in the company.
- If your request doesn’t fall within the hours of operation of the credit union (e.g. at Metro Moneywise, we process withdrawals made before 3 pm Monday to Friday).
Other types of credit union savings accounts
Some credit unions offer cash ISA accounts. Cash ISA is an account that you don’t have to pay tax on, but you can only save to a certain limit each year. Some very large credit unions offer fixed savings accounts which offer fixed savings rates similar to banks. These can be identified because they usually say ‘AER’ (Annual Equivalent Rate).
How will my savings affect getting a loan?
Some credit unions require you to set up a savings account before applying for a loan. If you take out a loan, your savings may be held in your account until you have paid back some or all of your credit union loan.
Do you need savings to get a credit union loan? This is different for each credit union. Some credit unions require you to save and make deposits for a certain amount of time to ensure you will be able to repay your loan. Read our article Requirements, Eligibility, and Approval Odds for Credit Union Loans to find out what we require.
How to Get the Most Out of Your Savings Account
At Metro Moneywise, we aim to help people learn how to save more effectively. Use our savings calculator to help determine how long it’ll take to reach your goal. You can also speak to a member of our team. While we can’t give financial advice, we can help our members get the most out of your account by
- Signing you up for our monthly lottery.
- Helping you decide how much you can deposit and how often.
- Setting up deposits directly from your wages into a savings account.
- Helping your relatives to save by allowing them to become members too.
We offer lots of helpful resources about how to save money in our blog about saving, including:
- How Much Can You Save in the Credit Union
- Benefits of Saving With Credit Union
- Should You Open a Credit Union or Bank for Savings Account?
- How to Find the Best Credit Union for Savings Account
If this sounds like what you’re after, find out how to join our credit union.