Credit unions: borrowing below bank rates — and joining is about to get easier

A credit union is a financial co-operative owned by its members rather than shareholders. It offers savings accounts and small loans, with interest capped by law at 3% a month on the reducing balance. For anyone facing an expensive overdraft or turned down over a short UK credit history, it is one of the cheapest legal ways to borrow.

You can only join if you share a common bond with the membership — living or working in the same area, or working for the same employer.

What is changing

On 11 November, HM Treasury announced that members who move away from a credit union's area will keep the right to refer their relatives for membership. At present only those living or working in the area can do so. The change covers more than 50,000 people in Great Britain.

It builds on the reform set out in March: raising the cap on potential members of locality-based unions from 3 million to 10 million; letting students join their local union alongside residents and workers; admitting members' relatives whether or not they share a household; and letting members of employer-based unions stay on after retirement. The government's stated aim is to double the sector. Legislation will follow when parliamentary time allows.

Savings in a credit union are protected like a bank deposit, by the Financial Services Compensation Scheme (FSCS): if a union fails, the state scheme repays savers within its limit. Credit unions are authorised and supervised by the same regulators as banks.

Why it matters

Many unions lend only alongside regular saving, so a safety cushion builds while the loan is repaid. You can find the union covering your postcode or employer through the credit union association's online finder; membership is normally open to recent arrivals too.