Credit union or building society: which mutual fits your money?

Credit unions and building societies are both mutuals: financial institutions owned by their members rather than by shareholders. Beyond that, they do quite different jobs. A credit union is a not-for-profit lender and saver for a defined group of people, offering small loans and savings accounts, often to people the banks turn away. A building society offers savings and mortgages, and often a wider range of financial services, to anyone who lives in the UK.

The practical difference for most people comes down to what you need. If you want to borrow a few hundred or a few thousand pounds and you have struggled to get credit elsewhere, a credit union is built for that. If you want to save regularly or take out a mortgage, a building society is the more likely fit. Both are protected by the Financial Services Compensation Scheme, so your money is covered if the institution fails¹.

Both are owned by their members

Building societies and credit unions are customer-owned financial institutions based across the UK in local communities⁷. Banks tend to be owned by shareholders, whereas building societies are mutuals, owned by their members⁸. A credit union is a non-profit financial institution owned by members who hold savings in the union⁹.

That ownership changes what the institution is for. A credit union is a not-for-profit financial provider that helps people access banking products like bank accounts, savings and loans, run by members to benefit communities rather than to make a profit⁵. Building societies exist to serve their members too, and as a member you have rights to receive information and to voice your opinions on the way your building society is run¹⁰.

The Building Societies Association represents all 42 UK building societies, including both mutual-owned banks, as well as a number of the largest credit unions¹¹. The exact count of credit unions it represents has been given as 7 and as 8 in different press releases, so treat that figure as approximate.

Who can join: the common bond

The single biggest difference in who can join is the common bond. All credit unions in the UK may only accept members who have a common bond⁹. That may be based on where they live or work, the type of occupation they have or their employer⁹. In practice it means living, working, studying or volunteering in a certain area, working in the same industry or for certain employers, or belonging to the same trade union⁵.

Anyone can become a member of a credit union, but you must share a common bond with other members¹². If a credit union's rules allow, it may have more than one common bond, which widens who can join¹³.

Building societies have no equivalent restriction. A building society is a mutual institution offering savings and mortgage accounts and, often, a wide range of other financial services, and anyone can open an account¹⁴.

Family membership follows the same logic. As long as one member of a family meets the common bond requirements and has joined the credit union, the other family members living at the same address can usually join¹⁵. Anyone in the house of a person with a common bond with a credit union can usually join⁴. If one member of your family is already a member, other relatives living at the same address can usually join too¹³.

What each offers: savings, loans and accounts

A credit union provides loans, savings, bank accounts and other services to its members⁵. All credit unions offer savings accounts and loans¹². Services vary by branch but can include savings accounts, loans, foreign exchange and prepaid debit cards, and some offer current accounts¹⁶.

Building societies offer savings and mortgage accounts and, often, a wide range of other financial services¹⁴. That makes them a natural home for a mortgage or a savings account, and many also offer current accounts, credit cards and insurance.

Borrowing costs: credit union loans capped at 3% a month

The cost of borrowing from a credit union is capped by law. By law, the amount of interest charged by a credit union can be no more than 3% a month, an APR of 42.6%². The maximum interest a credit union may charge on loans is 3% per month¹⁷.

That cap was raised from 2% to 3% per month by the Credit Unions (Maximum Interest Rate on Loans) Order 2013, which came into force on 1 April 2014¹⁸. The same order caps the interest a credit union can charge on hire purchase and conditional sale agreements at 3% per month¹⁷.

The cap matters because it sets a ceiling, not a typical rate. Credit unions offer very competitive rates of interest on personal loans of up to about £3,000 and are happy to offer much smaller loans than banks². Most credit unions lend small loans of around £50 to £3,000³, and some provide loans starting from £50¹⁹.

Credit unions always consider affordability when assessing loan applications¹⁹. That is a different approach from a payday lender, which may lend without checking whether you can repay. The Financial Ombudsman Service can look at complaints about payday loans, the affordability of lending, or being unhappy with the quality of goods bought or hired with credit²⁰.

Where credit unions fall short of a building society

Credit unions are not simply smaller building societies. There are real limits to what they can do.

Most of the loans that credit unions provide are specifically exempt from the Financial Conduct Authority's Consumer Credit sourcebook (CONC)²¹. The effect is that credit unions are exempt from certain rules and regulations that apply to other financial services providers²². The assessment standards, for example the level of checks a lender may have needed to do before lending, will typically be lower than those imposed on lenders and loans covered by CONC²². That cuts both ways: it lets credit unions lend to people the mainstream market will not serve, but it also means the protections attached to a loan are not identical to those on a regulated consumer credit agreement.

Credit unions are also smaller operations. Lots of smaller credit unions rely on volunteers, and only the larger ones have paid staff⁴. That can mean shorter opening hours, fewer branches and slower decisions than a high street bank or building society.

Building societies, by contrast, operate at scale. In 2025, building societies paid £2.1 billion more in interest to savers than they would have received from the average rates offered by the major banks¹¹. They also play a role in tackling scams, and 75% of customers say a branch makes managing money easier²³.

Paying in, withdrawing and day-to-day banking

Credit unions are built around simple, accessible accounts. For free, you can usually pay in or take out cash at the credit union, have money paid in such as wages, benefits and pensions, use online, mobile or telephone banking, and get budgeting advice and support⁵.

Benefits are usually paid straight into your bank, building society or credit union account²⁴. You will be asked for your bank, building society or credit union account details when you claim²⁴. In Northern Ireland the same applies: you will be asked for your bank, building society or credit union account details when you claim²⁵.

Building societies and banks are part of the same payment infrastructure. The main banks and larger building societies are direct members of CHAPS, the same-day payment system²⁶. Building societies also offer branch access, which matters to older customers: 26% of adults aged 75 and over find getting to a bank, building society or credit union difficult, up 5 percentage points from 2022, and 21% of adults aged 55 and over, or younger people with a health condition or illness, said the same, up 4 percentage points since 2022²⁷.

Digital-only banking is still a minority habit. In May 2024, 14% of the 52.5 million adults with a current account with a bank, building society or credit union held an account with a digital-only provider²⁷. In 2022, 5.5 million adults, 11% of all adults with a day-to-day account, were using an account dashboard service provided by their own bank, building society or credit union²⁸.

How to join a credit union

Joining is straightforward, but it is not instant. To become a credit union member, you need to visit or call your chosen credit union to confirm what information you need to join¹². Membership of a credit union is based on a common bond¹².

You will need to become a member, which normally means being asked to pay a small fee, for example £2, or save a certain amount, such as £10⁵. You will usually need to provide two recent documents to prove your identity and address, for example a passport, driving licence, student or work ID card, bus pass, birth certificate, bank statement or energy bill⁵.

Most local areas have a credit union⁴. The Find Your Credit Union website, at www.findyourcreditunion.co.uk, can help you locate credit unions, and credit union finders are listed separately for England, Scotland and Wales, and for Northern Ireland⁵.

Protection and complaints: FSCS and the Financial Ombudsman

Your money in a credit union or building society is protected if the firm fails. The Financial Services Compensation Scheme protects you if your bank, building society or credit union runs into financial difficulty²⁹. Loans and savings with a credit union are protected by the Financial Services Compensation Scheme¹⁹.

FSCS will pay compensation within seven working days of a bank, building society or credit union failing, though more complex cases, including temporary high balance claims, take longer¹. A quick and easy way of finding out whether a PRA-authorised bank, building society or credit union is protected by FSCS is to look for the 'FSCS Protected' badge¹.

If something goes wrong, complain to the firm first. You can only go to the Financial Ombudsman Service after you have made a complaint to the bank or building society itself⁶. If you are unhappy with the final response, or the timeframe has passed, you can take your complaint to the free Financial Ombudsman Service⁵. The Financial Ombudsman Service provides dispute resolution between banks and customers as part of its considerations into the individual circumstances of a complaint³⁰.

There is one protection that applies only to mutual accounts. If a creditor tries to take money from your account through a third party debt order, your money is protected if it is in a building society or credit union account and you would be left with less than £1 if the debt were paid. This does not apply to other bank accounts³¹.