What credit unions offer: savings, loans, current accounts and more

A credit union is a not-for-profit financial provider that offers loans, savings, bank accounts and other services to its members¹. Every credit union in the UK offers savings accounts and loans², and many offer considerably more: junior savings accounts, Christmas savings accounts, prepaid debit cards, insurance products, cash ISAs and, in some cases, even mortgages². Larger credit unions add extras such as budgeting accounts, current accounts and debt management help³.

What makes them different from banks is who they are for. A credit union is a group of people connected by a "common bond", based on the area they live in, the occupation they work in, or the employer they work for, who save together and lend to each other at a fair and reasonable rate of interest⁴. They historically offered simple savings and loan products to financially excluded individuals⁵, and official guidance says they provide access to fair and affordable credit for people with a poor credit history⁶. Credit unions made over 650,000 loans to people on low incomes, saving them on average £401 a year compared with other sources of credit⁷.

What credit unions offer: savings, loans and more

The starting point is simple: all credit unions offer savings accounts and loans². A credit union provides loans, savings, bank accounts and other services to their members¹, and describes its loan products as suited to individual needs and at rates you can easily afford¹¹. Beyond that core, the range widens quickly depending on the size of the credit union.

The larger credit unions offer extra services like Christmas savings accounts, cash-based Child Trust Funds, ISAs, budgeting accounts, current accounts (whose features may vary) and debt management³. Some offer other insurance products including travel, motor, home insurance and funeral plans³, and most also offer free life or loan-protection insurance³. Some credit unions also offer great value electrical and household goods that you can pay for in weekly instalments, much cheaper than the ones you may find on the high street¹².

This variety is deliberate rather than accidental. Credit unions are not-for-profit and are run by members to benefit communities rather than to make a profit¹, so each one builds its product range around what its own members need. A small credit union serving one town may offer nothing but savings and loans, while a large one with tens of thousands of members can support the systems needed for current accounts and cash ISAs. When you compare credit unions, expect very different product lists, not different prices for the same list.

If you are weighing a credit union against other providers, the comparisons on credit union or bank, credit unions and CDFIs and credit union or building society set out how each model behaves. The credit unions section covers the whole subject in depth.

Savings accounts: your money buys shares that can earn a dividend

When you save with a credit union, your money buys shares in the credit union rather than sitting in a deposit account in the way a bank savings account works. Instead of paying interest, the credit union shares its profit evenly among savings accounts, and this payment is called a dividend³. Some of the profit is reinvested to improve services³.

A dividend is not the same thing as a guaranteed interest rate. It depends on how well the credit union has done in the year, so the amount can change from year to year and can in principle be nothing at all. What does not change is the protection behind the money itself: all shares (savings) in a credit union are eligible for protection under the Financial Services Compensation Scheme⁴.

You can choose to save as little or as much as you can afford¹¹, which is one of the reasons credit unions suit people who would not manage a conventional account with minimum monthly deposits. Many credit unions also run junior savings accounts for children², and the guide to credit union savings accounts explains the accounts in detail, with junior savers covering saving for a child.

Credit union loans: from £50 up to around £3,000

Credit unions provide loans starting from £50⁶, and most lend small loans of around £50 to £3,000⁸. Independent guidance notes that credit unions offer very competitive rates of interest on personal loans of up to about £3,000⁹, and that they are said to offer the most competitive rates in the UK for personal loans of up to around £2,000⁷. The aim, as StepChange puts it, is to provide loans at low interest rates¹³.

That size range is not a coincidence. It matches the gap in the market credit unions were created to fill: small sums borrowed over short periods, where mainstream lenders often will not lend and high-cost credit steps in. Payday loans, by comparison, are typically between £50 and £1,000¹⁴, and credit unions are recommended as an alternative borrowing option to payday loans¹³. The comparison of credit union loans versus payday loans sets the two side by side, and credit union loans or doorstep lending does the same for weekly-collection lenders.

How much you can borrow as a member depends on the credit union's own policy. If you are a member of a credit union, you can usually borrow at least two or three times the amount you have in savings, depending on the loan policy of your credit union¹⁵. Every application is still assessed: credit unions always consider affordability when assessing loan applications⁶. Some credit unions will ask you to build savings first¹³, a practice covered in save as you borrow and do you need savings to get a loan?.

The full range of loan types, from Child Benefit loans to green loans for home energy improvements, is covered in types of credit union loan, with costs in what a credit union loan costs and the application process in applying to borrow.

Interest on loans is capped at 3% a month

By law, the amount of interest charged by a credit union can be no more than 3% a month, an APR of 42.6%⁹. The same 3% per month maximum on loans is confirmed in official guidance for Northern Ireland¹⁷, and Schedule 14 of the same legislation also caps the interest a credit union can charge on hire purchase agreements and conditional sale agreements at 3% per month¹⁷.

The cap is set in the Credit Unions (Maximum Interest Rate on Loans) Order 2013, which increased the maximum interest a credit union may charge on a loan to 3 per cent per month¹⁸. Before that Order, the limit was 2% per month¹⁹. The change followed a process that began when the Government published a consultation on raising the maximum interest rate in December 2012, and continued when HM Treasury published its response in June 2013 and agreed to proceed¹⁸. The new rate of three per cent per month took effect from 1 April 2014²⁰.

The cap has a longer history still. Before 6 April 2006, credit unions were restricted to a maximum of 1% per month on loans, inclusive of all administrative costs and other expenses²¹. The documents from that period also describe the earlier cap as 2% per month, and the two figures are not reconciled in the sources, so both are recorded here²¹.

Two things matter about the cap in practice. First, it is a ceiling, not a price: many credit union loans cost less than 3% a month, and the rate for a particular loan is shown before you borrow. Second, the cap is what allows credit unions to lend small amounts to people with poor credit histories at all, since very small loans are expensive to administer and a rigid lower cap made them uneconomic. The narrow guide to the maximum interest a credit union can charge goes deeper.

Current accounts, ISAs and other extras at larger credit unions

Many credit unions offer a wide choice of additional products such as junior savings accounts, Christmas savings accounts, prepaid debit cards, insurance products, cash ISAs and in some cases even mortgages². The larger credit unions offer extra services like Christmas savings accounts, cash-based Child Trust Funds, ISAs, budgeting accounts, current accounts and debt management³.

A credit union current account is a real option for everyday money. 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 support¹. The Credit Union Prepaid Card, offered through some credit unions, has no monthly or annual fees and low everyday fees²². The details are in current accounts and prepaid cards from credit unions.

Cash ISAs are the other significant extra. FSCS deposit protection covers current accounts, savings accounts, cash ISAs and savings bonds²³, and there are 4 main types of ISA: cash ISA, stocks and shares ISA, Innovative Finance ISA and Lifetime ISA²⁴. Where a credit union offers a cash ISA, it is the cash type, protected like other deposits. The ISAs section explains how ISAs work generally.

Mortgages are the rarest extra. Some credit unions do offer them², and a Scottish Government policy statement records a proposed restriction of credit unions to solely "regulated mortgage contracts", noting it may limit their potential to enter into future segments²⁵. If your credit union offers mortgages, the general rules in the mortgages section apply alongside them.

The extras vary by nation as well as by size. Welsh Government research found many credit unions in Wales offer multiple savings accounts, Child Trust Fund Accounts, "instant affordable loans" and loans based on flexible rates of interest, with others exploring the Credit Union Current Account or prepaid debit cards²⁶. Whatever the extras, the core protection is the same: loans and savings are protected by the Financial Services Compensation Scheme⁶.

What credit unions cannot offer

A credit union is not a bank and cannot offer overdrafts, mortgages, electronic banking services and payment methods or business loans in the same way as a bank²⁷. That is the clearest single statement of the limit, and it comes from a Northern Ireland Assembly research paper comparing customer-owned providers. In practice it means the biggest gaps for most people are overdrafts and the full range of payment services a bank provides.

The law and rulebooks carve credit unions out in specific places. Credit unions within the meaning of the Credit Unions Act 1979 or the Credit Unions (Northern Ireland) Order 1985, along with National Savings and Investments and the Bank of England, are not payment service providers for the purposes of the payment services regulations²⁸. The FCA's CONC 5D rules on creditworthiness do not apply to a credit union²⁹, and the Payment Systems Regulator excluded credit unions, municipal banks and national savings banks from the scope of its authorised push payment scams reimbursement policy [25 is S51]. Credit unions in Great Britain may offer insurance services¹⁷, while in the Republic of Ireland, 2024 regulations exempted credit unions from offering current account services, a broader range of insurance intermediation services, investment intermediation services and mortgage intermediation type services¹⁷.

The practical takeaway is to check what your local credit union actually lists before assuming a bank-like service. Where a credit union uses a community bank or savings and loans name, community banks and savings and loans explains what is behind the branding.

Who can join: the common bond

Anyone can become a member, however you must share a "common bond" with other members². All credit unions in the UK may only accept members who have a "common bond"⁵. The bond can be living, working, studying or volunteering in a certain area, working in the same industry or for certain employers, or belonging to the same trade union¹.

The common bond extends to households. 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 join³, and anyone in the house of a person with a common bond with a credit union can usually join¹³. The details are in the common bond: who can join and can your family join too?.

Because the bond is about joining rather than staying, moving house or changing job does not normally end your membership, though it can affect whether new family members qualify. Keeping your membership after you move or change job covers that, and joining through your employer, trade or profession covers work-based bonds.

How to join, pay in and take money out

Joining normally means being asked to pay a small fee, for example £2, or to save a certain amount, such as £10¹. 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 bill¹. The step-by-step version is in how to join a credit union.

Credit unions reach members in different ways: some have online and phone banking, some run a payroll partnership with your employer, and some have a local branch or service point you can walk into¹¹. The comparison of payroll deduction or paying in yourself sets out the two main ways money goes in.

Getting money out also varies. Options include cashing a cheque at a local Post Office, cash from a local credit union office, payment directly into a bank account, or a debit card at a cash machine if the credit union operates a current account³. The guide to withdrawals and notice explains the rules that can apply.

Benefits can be paid into a credit union account. Benefits are usually paid straight into your bank, building society or credit union account³⁰, and to receive benefits like Universal Credit you will usually need an account that can receive automatic payments, which could be with a bank, building society or credit union³¹. See can benefits be paid into your account? and the wider benefits section.

Missed repayments and when your savings can be used

If you miss payments on a loan, the credit union may be able to use your savings to repay the loan¹⁵. This is the single most important difference between a credit union loan and a bank loan to understand before you borrow: money you have saved with the same credit union can be set against what you owe, so your savings may not be available to you while you are behind.

If you are struggling, the right move is to talk to the credit union early rather than wait for the missed payments to mount up. Free, impartial debt help is available from StepChange, which publishes guidance on credit union loans and on the alternatives for people in difficulty¹³, and the debt section lists the free advice charities. Falling behind on a credit union loan covers the process, and credit union loans and your credit file explains what a default means for your credit record.

One offsetting point on the savings side: credit unions may also choose to pay a loan interest rebate, which is a refund of loan interest paid to all members who borrowed during the preceding financial year⁴. Not all credit unions do this, and it is discretionary, but it is worth asking about when you join.

FSCS protection: up to £120,000 per person

FSCS can pay back any money you hold with a failed credit union, up to its compensation limit of £120,000 per person³³. The limit is £120,000 per person or company, per authorised firm³⁴, and FSCS protects your money up to £120,000 for all banks, building societies and credit unions that are authorised by the Prudential Regulation Authority and the FCA¹⁰. Protection for banks, building societies and credit unions is up to £120,000 per person per banking licence³⁵.

The protection covers the same deposit types as banks: current accounts, savings accounts, cash ISAs and savings bonds²³. Because credit union savings are held as shares, the wording matters: all shares (savings) in a credit union are eligible for protection under the FSCS⁴. Loans and savings are protected by the Financial Services Compensation Scheme⁶.

Two details are worth knowing. First, the limit is per authorised firm, not per brand or per account, so money across several accounts with the same credit union counts together. Second, where a business is a separate legal entity, FSCS would protect each one up to £120,000³³, which matters for sole traders and small business members. If a credit union fails and you cannot find it, FSCS publishes guidance on what to do when you cannot find a failed firm¹⁰.

For the wider picture of who guarantees what in UK finance, see consumer protection in UK financial services.