Credit union savings accounts: shares, regular savers and limits

All credit unions offer savings accounts and loans¹. A credit union is a self-help co-operative whose members pool their savings to let each other borrow money at a low rate of interest², so saving is the foundation of everything a credit union does. Savings accounts either pay interest or a share of any profits³, and the money is protected by the Financial Services Compensation Scheme (FSCS) up to £120,000 per person if the credit union fails⁴.

Unlike a bank, a credit union exists for a defined group of members who share a common bond, such as living in the same area or working for the same employer. That shapes the savings offer: accounts are often built around small, regular payments, and saving is closely tied to borrowing, because members' savings are what fund the loans. This page explains the types of savings account credit unions offer, how the return on them works, what limits apply, how you pay in and get money out, and how your savings are protected.

Types of credit union savings account

The core product at almost every credit union is the ordinary savings account, often called a share account. The name comes from the way a credit union is built: when you save, you subscribe for shares in the credit union, and legislation has long recognised a deposit with a credit union as a subscription for shares⁸. In practice a share account works like a savings account anywhere else: you pay money in, it builds up, and you withdraw it when you need it. Savings accounts either pay interest or a share of any profits³, and which of these applies is set by the individual credit union.

Beyond the basic share account, credit unions offer variations built around habits and goals:

• Regular savers: accounts designed for small, steady payments, often weekly or monthly, which suit people building a savings habit from a low starting point.
• Christmas savers: accounts where money saved through the year is released towards the end of the year, so it cannot be dipped into early. See Christmas savers and Christmas loans.
• Junior savers: accounts for children, sometimes run through schools. See Junior savers accounts.
• Instant access and fixed term options: the wider savings market, including credit unions, offers a range of accounts including instant access and fixed term options⁹, and some credit unions offer both.

Services vary between credit unions and even between branches: alongside savings accounts and loans, some offer foreign exchange and prepaid debit cards, and some operate current accounts¹⁰. A few also run prize draws, covered separately on the PrizeSaver page. Because each credit union decides its own range, the accounts on offer depend on which one you can join, and the directory shows what individual credit unions provide.

Dividends are not guaranteed: how they are set and paid

The return on most credit union savings is a dividend, and the key thing to understand is that it is not guaranteed. Profit shares are distributed amongst credit union members annually and are known as a dividend¹¹. A credit union will normally pay out a dividend once a year, and the amount you get depends on how much you have saved and how much profit the credit union has made¹². You will normally receive a dividend on your savings, usually paid annually⁵.

This is the main structural difference from a bank savings account, where the interest rate is agreed in advance. With a dividend, the credit union works out its surplus at the end of its financial year, after expenses and taxes, and members then decide at the annual general meeting what portion to pay out. A successful year for the credit union will see members receive a dividend on their savings, which could be as high as 3%¹. In a poor year, the dividend can be small or nothing at all.

There are rules around the edges. Under the rules that applied to credit unions in Great Britain in 2007, a credit union could pay a dividend on shares not exceeding 8%, after all expenses and taxes had been accounted for⁶. That cap belongs to an earlier regulatory era, but it illustrates the principle: the dividend comes out of realised profit, not out of a promise. Some credit unions pay interest instead of a dividend, in which case the rate is fixed in advance like a bank's³.

If a guaranteed rate matters to you, ask the credit union whether its account pays interest or a dividend, and whether it publishes recent years' dividend rates. Past dividends are no promise of future ones, but they show how the credit union has performed in good years and bad.

Balance limits and minimums: what you can hold and pay in

Each credit union sets its own limits on savings. They may have their own limits as to how much you can save¹¹, so the maximum balance, the minimum opening deposit and any minimum monthly payment all vary from one credit union to another. Before joining, ask for the current limits in writing, because they are set by the credit union's own rules rather than by a single national figure.

The legal limits that do exist are mostly historic, and they show how far the rules have moved. Under the Credit Unions Act 1979 before its amendment, the maximum saving permitted in the rest of the UK was £5,000 or 1.5% of the total shareholding of a credit union, whichever was the greater⁶. That ceiling has since been lifted, and modern credit unions set much higher limits of their own.

One limit that was raised rather than removed concerned children. In 2006, the limit on deposits from persons too young to be members was increased from £5,000 to £10,000, unless the deposits were held in a Child Trust Fund, in which case the credit union could accept a larger deposit⁶. Again, this is a historic figure from the rules of the time, but it reflects a principle that still holds: junior accounts can have their own limits, separate from adult accounts, and a child who saves with a credit union may not need to be a full member to do so. The current position is explained on the junior savers page.

In practice, most people saving with a credit union are nowhere near any limit. The accounts are typically built for regular small payments, and the credit union will tell you its own maximum when you join. The joining page covers what you need to open an account, including any minimum balance.

Saving and borrowing are linked, but saving does not require a loan

Saving with a credit union does not commit you to borrowing, and borrowing is not a condition of saving. But the two are connected by design, and it helps to understand how before you open an account.

Members' savings are used to fund loans to other credit-worthy members of the credit union¹³. Your savings do not sit in a pot with your name on them; they are pooled, and the pool is what allows the credit union to lend. That is why credit unions can lend at low rates², and why the health of your savings and the health of your fellow members' loans are the same thing.

The link runs in the other direction too. 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 upon the loan policy of your credit union⁷. Some credit unions ask you to build up savings first before they will lend¹⁴, and usually, but not always, they give loans if you have saved a certain amount with them first¹⁵. If you join a credit union and start saving with them, you will also be able to apply to borrow money once you have proved you are a reliable saver¹⁶. None of this is a requirement to borrow: it is an option that opens up, and many members never use it.

Two consequences of the link matter for a saver. First, if you have a loan with the same credit union, your savings may be restricted while the loan is outstanding, and the rules on withdrawing shares while repaying a loan explain the common approaches. Second, if you miss payments on a loan, the credit union may be able to use your savings to repay the loan¹⁷. That is a real risk that does not exist when your savings and your borrowing sit with different firms, and it is the main thing to weigh when deciding whether to save and borrow in the same place.

On the other side of the ledger, credit union lending decisions are often gentler than a bank's. Credit union current accounts usually come with no credit check or overdraft³, and for loans, you usually will not have to pass a credit check, even if you apply for an overdraft; credit unions normally use manual checks to decide whether to lend³. The pages on saving before borrowing and borrowing against your savings cover the detail.

Paying in: payroll, benefits, Direct Debit, cash and cheques

Credit unions are built for people who want to save a little, regularly, and the ways to pay in reflect that. Members can pay in directly by payroll deduction or through benefit direct accounts; through retail payment networks such as PayPoint and PayZone; by standing order or Direct Debit, or in cash at local offices and collection points¹. The Building Societies Association lists the same range: direct from your wages via payroll deduction, by Direct Debit or standing order, in cash at the credit union office or a collection point, with State benefits paid in directly, and PayPoint cards in some places⁵.

Each route suits a different situation:

• Payroll deduction: your employer passes the money to the credit union before it reaches you, which removes the temptation to skip a week. Some employers have arrangements with a credit union, covered on the joining through work page, and the payroll privacy page explains what your employer sees.
• Benefits paid in directly: benefits are usually paid straight into your bank, building society or credit union account¹⁸, so a credit union account can receive them like any other. The benefits page covers the detail, including Universal Credit, which usually goes into the main carer's bank account in households with children¹⁹.
• Standing order or Direct Debit: you set the amount and it goes automatically, which suits anyone paid into a bank account elsewhere.
• Cash: at the credit union's office or a collection point, and through PayPoint and PayZone networks in some areas¹.
• Cheques: some credit unions accept them. As a guide to savings providers generally, the rules for the former Saving Gateway accounts permitted payment by cheque, Direct Debit, standing order, direct credit or cash²⁰, and NS&I states that cheque deposits into its Direct Saver clear no later than the seventh banking day after being received²¹. Ask your credit union about its own cheque timescales.

Getting money out works through the same channels in reverse. Options include cashing a cheque at a local Post Office, taking cash from the local credit union office, having a payment made directly into a bank account, or using a debit card at a cash machine if the credit union operates a current account⁵. With a credit union current account you can usually, for free, 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 support³. The withdrawals page and the guide to paying money into your account go further, and the comparison of payroll deduction against paying in yourself sets the two main routes side by side.

Free life cover with membership: what it pays

When you borrow from a credit union you normally get free life insurance to cover the value of the loan, so the loan is repaid if you die before paying it back in full⁵. This cover is arranged by the credit union rather than bought by the member, and it is one of the features that distinguishes credit union borrowing from most other lenders: there is no separate premium to pay and no application to make.

The cover on loans means that a debt does not normally pass to your family. If a member dies with a loan outstanding, the insurance clears the balance, and the position for the member's savings at the same time is explained on the loan protection page and the page on what happens when a member dies.

Some credit unions extend the same principle to savings, with life savings cover that pays out based on what a member has saved. Because these arrangements are set up by each credit union individually, the terms, including any age limits or maximum payouts, vary. Ask your credit union what cover it provides, and see the life savings insurance page for how it typically works and the death benefit page for related payments towards funeral costs.

Tax on credit union dividends

Dividends from a credit union are income, and the tax position depends on your total income from dividends and savings interest. HMRC provides a tool to check whether you have to pay tax on your dividend income or savings interest, and to find out how the tax is worked out²². To check your tax using that service you need tax code 1257L²², which is the standard code for most people with one job and no untaxed income.

How much tax you pay, if any, depends on your circumstances: your total income, your other savings interest, and the allowances that apply to each. The general position is covered in the site's guide to personal tax. Because a credit union dividend is paid annually rather than monthly, the tax it attracts arrives in one lump in the year the dividend is paid, which is worth knowing if you are close to a tax threshold.

Two things to keep in mind. First, the dividend is not guaranteed, so you cannot plan a tax position around a figure you do not yet know. Second, the historic cap of 8% on dividends⁶ belongs to the pre-2012 rules for Great Britain and is not a current rate; the dividend your credit union declares is whatever its members approve from that year's surplus, and recent examples have been as high as 3%¹. If your credit union pays interest rather than a dividend, the tax treatment follows the normal savings interest rules instead.

FSCS protection: up to £120,000 per person

Money saved with a credit union is protected by the Financial Services Compensation Scheme, the same scheme that covers banks and building societies. FSCS protects up to £120,000 in total across all accounts you hold with the credit union⁴, and it can pay back any money you hold with a failed credit union, up to its compensation limit of £120,000 per person⁴. Eligible depositors are automatically compensated up to £120,000 per eligible person, per bank, building society or credit union²³.

The limit is per person, per authorised firm, not per account. FSCS protects up to £120,000 per person or company, per authorised firm²⁴, so two accounts with the same credit union share one limit, while accounts with two different credit unions each get their own. Joint accounts are also eligible for FSCS protection up to the same limit of £120,000 per eligible person²⁵, so a joint account is treated as each holder having a share, and the FSCS savings protection limit is £120,000, or £240,000 for joint accounts, per authorised firm²⁶. FSCS can automatically compensate you, up to £120,000 per eligible person, per firm²⁷.

The limit has risen sharply over the years, as the timeline shows. In 2006, members' funds were covered up to a maximum of £31,700²⁸. By 2016, savings in a credit union were covered by FSCS up to £75,000 per person, exactly the same protection as savings in a bank or building society²⁹. In 2018 the figure was £85,000 per person, per institution³⁰, and the current limit is £120,000 per eligible depositor for all banks, building societies and credit unions authorised by the Prudential Regulation Authority and the FCA³¹.

Protection is automatic: you do not apply for it, and there is no cost to the saver. You can check whether your money is protected using the FSCS protection checker²³, and if you cannot find your credit union on its list, FSCS provides a way to search for it³¹. Many credit unions also display the FSCS Protected badge, which signals that deposits are protected up to £120,000 per eligible person, per firm²⁷. The one thing to watch is the "per authorised firm" rule: if your credit union merges with another, your cover can change, and the mergers page explains what happens to your savings and any loan.

Where to get free help

Several independent organisations provide free information about credit union saving. MoneyHelper, the government-backed money guidance body, explains credit union accounts including how savings and current accounts work³. The Consumer Council for Northern Ireland publishes guidance on savings accounts, including credit union savings¹¹, and on managing and maximising your money⁹. Citizens Advice explains credit unions in its money jargon guide² and its guidance on getting a bank account³². For debt and budgeting questions, StepChange¹⁴, National Debtline⁷ and Business Debtline¹⁶ all publish free guides that mention credit unions as an option alongside other savings and borrowing choices.

To find a credit union you can join, use the finding page and the directory, and the section page on credit unions brings the whole subject together, including how to join and what credit unions offer beyond savings products page.