Getting your money out: withdrawals and notice

Most credit union savings can be taken out when you want them, but the route you use depends on what your credit union offers: many pay savings out by bank transfer, some hand over cash at their office, and those with current accounts let you use a debit card at cash machines or the Post Office. The main restriction to know about is that savings held as security against a loan usually cannot be withdrawn until the loan is cleared¹.

How long a withdrawal takes also varies. Credit unions are often small, local organisations with limited opening hours, so a withdrawal that a bank would make instantly can take a few days if it has to be processed by office staff. There is no single rule: each credit union sets its own procedures, and some accounts, such as notice accounts or term deposits, have their own conditions.

Ways to get your money out

The routes for getting money out of a credit union mirror the routes for paying in, and the mix depends on the size and systems of the credit union. The Building Societies Association lists the common options: cashing a cheque at a local Post Office, cash from the 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 account¹. Stevenage Credit Union, for example, tells members they can have money transferred to a bank account, or visit the office to ask for a cash withdrawal².

For credit unions that run current accounts, the picture is much closer to banking. MoneyHelper states that, 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, and use online, mobile or telephone banking⁸. Research for the Financial Inclusion Centre found that credit union current accounts can be used at a local Post Office for both withdrawals and deposits⁹, and Citizens Advice confirms that some banks and account providers let you cash a cheque or use your cash card at the Post Office free of charge¹⁰. Post Office branches themselves offer withdrawing money, paying in cash and cheques, and checking your balance, depending on who you bank with¹¹.

If your credit union does not operate a current account, the office counter and bank transfer are the usual routes. Some credit unions collect money at local collection points and through retail payment networks such as PayPoint and PayZone for paying in¹², but paying out is generally done by transfer to a bank account or cash at the office. Where a credit union pays wages or benefits into an account, money can be paid out by bank transfer, cash or cheque¹³. A few benefit claimants who cannot use any account are paid by PayOut vouchers, which are exchanged for cash at the Post Office¹⁴, but this is an exception arrangement rather than a credit union service.

Practical points worth checking with your own credit union before you need the money:

• Opening hours and locations. Many credit unions have a single office with limited hours, so a same-day cash withdrawal may need a visit during opening times.
• Identification. You will usually need to provide documents proving your identity and address, for example a passport, driving licence, bank statement or energy bill⁸, and some credit unions require a passbook for every transaction.
• Minimum balances. Some credit unions require a small balance to stay in the account to keep membership alive, which affects how much you can take out (see below).
• Transfer times. A bank transfer requested on a non-working day, or processed manually by office staff, can take longer than an automated bank payment.

The guides on credit union savings accounts and current accounts and cards from credit unions cover the account types in more detail.

Savings held against a loan cannot always be withdrawn

The single most common reason a credit union refuses a withdrawal is that the savings are secured against a loan. Kildress Credit Union states the position plainly: you can withdraw your savings at any time, providing they have not been used as security on an existing outstanding loan⁴. Capital Credit Union's terms make the same point from the other direction: loans from Capital Credit Union will be secured against the savings held in its Instant Access Savings Account³.

This matters because secured savings are the credit union's fallback if the loan is not repaid. While the loan is outstanding, the money pledged as security is effectively locked. How much is locked varies: some credit union loans are fully secured, others only partly, and the loan agreement states which. If you are considering borrowing against your savings, the page on borrowing against your savings explains how it works, and withdrawing shares while repaying a loan covers the position during repayment.

Two other restrictions can reduce what you can take out. First, minimum balances: Capital Credit Union requires all members to keep at least £1 in the Instant Access Savings Account at all times³, so a member cannot empty the account completely while remaining a member. Second, some accounts have their own structure: Kilkeel Credit Union's Easy Shares Account is a sub-account of the main account, cannot be used as security for a loan, and must be closed if the main account is closed¹⁷. Pomeroy Credit Union's version of the same account, for senior members saving for bills such as holidays, heating oil and Christmas, also states the money cannot be used as collateral for a loan¹⁸.

How withdrawing or leaving affects your dividend

Credit union savings normally earn a dividend rather than a fixed interest rate. Business Debtline explains that a credit union will normally pay out a dividend once a year, and the amount depends on how much you have saved and how much profit the credit union has made¹⁹. The Building Societies Association confirms the dividend is usually paid annually¹. Because the dividend comes from the credit union's surplus, it is not guaranteed: Capital Credit Union's terms state an annual dividend may be paid, subject to surplus, with the rate recommended by the board and approved by members at the AGM, and any dividend paid into the account after the AGM³.

This timing has a direct consequence for anyone thinking of leaving. Capital Credit Union states that if a member cancels their membership before the AGM is held in January, the funds in the Instant Access Savings Account are paid out as part of standard procedures, but no dividend will be payable⁵. In other words, closing the account just before the AGM means giving up the dividend the savings earned during the year. Members who want that dividend need to keep the account open until after the AGM, then close it.

How much you withdraw during the year can also matter. Capital Credit Union bases any dividend payment on your lowest monthly balance³, so taking money out, even temporarily, reduces the balance the dividend is calculated on. The same principle applies to the government's Help to Save scheme, which some credit union members use alongside their savings: withdrawing money could mean you are not able to earn a final bonus, depending on how much you withdraw and when²⁰.

A few other rules sit alongside the dividend:

• Minimum regular saving. Capital Credit Union requires at least £3 a week (£15 a month) into the account, though this is waived for members paying regularly into a Cash ISA or Premier Savings Account with the same credit union³.
• Joining fees are not returned. Just Credit Union charges a one-off non-refundable joining fee of £4, deducted from the first payment²¹, and this is not refunded when you leave.
• Sub-accounts follow the main account. Where an Easy Shares Account exists as a sub-account, closing the main account closes both, and a nomination normally covers both accounts¹⁷.

Tax on the interest your savings earn

Credit union dividends and interest are treated as savings income for tax purposes, in the same way as interest from a bank or building society. Interest on savings is usually paid gross, which means tax is not automatically deducted before the interest is paid²². Whether you owe tax depends on your total savings interest and your other income, and any tax due is collected by HMRC: if you are employed or get a pension, HMRC will usually collect the tax through your tax code⁷. You pay tax on any interest over your allowance at your usual rate of Income Tax⁷.

Most people pay no tax on their savings interest because of the personal savings allowance and starting rates for savings, but the position differs by individual circumstances, and the rules are covered in the personal tax guide. A few points specific to credit union savers are worth knowing:

• Dividends are paid gross. Capital Credit Union states its annual dividend may be paid gross of tax³, so no tax is taken off before the money reaches your account.
• Children's savings count too. Interest from a child's account is added to the child's savings income, and where a parent has given money that generates more than the £100 rule threshold, all of that interest, not just the amount over £100, is taxed as if it were the parent's²³. This can apply to junior saver accounts funded by parents.
• Withdrawals themselves are not taxed. Taking your own savings out is not a taxable event; only the interest or dividend the savings earned is within the scope of Income Tax.

One thing to be clear about: withdrawing cash on a credit card is a different matter entirely, and not a way to get at savings. Cash withdrawals on a credit card attract a withdrawal fee, a higher APR, and no interest-free period, and are recorded on your credit report²⁴. StepChange also notes that with cash transactions you are charged interest from the day you took the money out²⁵. If you have savings in a credit union, withdrawing them is almost always cheaper than a credit card cash withdrawal.

Is my money protected in a credit union?

Yes. Savings in a credit union are covered by the Financial Services Compensation Scheme (FSCS), the same scheme that protects savings in banks and building societies. The Scottish Government's report on Scotland's credit unions describes the protection as exactly the same protection as savings in a bank or building society⁶, and the Welsh Government confirms that loans and savings are protected by the FSCS²⁶. The Consumer Council for Northern Ireland and the credit union sector itself make the same point: all shares (savings) in an affiliated credit union are eligible for FSCS protection²⁷.

The level of protection has changed over the years, and the documents reflect that. A 2016 Scottish Government policy statement put the limit at £75,000 per person⁶, while Capital Credit Union's current terms state members can save up to the maximum covered by the FSCS, which is £120,000³. The current figure is the one that matters: the FSCS covers eligible deposits up to £120,000 per person per authorised firm, and credit union savings count towards that in the same way as bank deposits. If a credit union were to fail, the FSCS would pay compensation to members.

Two practical points about protection:

• The limit is per authorised firm, not per account. If you hold savings in more than one account with the same credit union, they count together towards one limit. Savings with a different credit union, or with a bank, are protected separately.
• Credit unions may set their own savings limits. The Consumer Council notes that credit unions may have their own limits on how much you can save²⁸, separate from the FSCS limit. Kilkeel Credit Union, for example, caps the combined balance of a main account and Easy Shares Account at £13,000¹⁷, while Pomeroy Credit Union's equivalent combined limit is £20,000¹⁸.

The consumer protection guide explains how the FSCS works across all types of financial firm, and the page on credit unions and banks compares the two in full.

What happens to your savings if you die

When a member dies, their credit union savings become part of their estate. As with bank accounts generally, the accounts are frozen when you die, and money can only be taken out if the executor transfers it²⁹. The executor deals with the estate, and any debts the person had are taken from the value of anything they owned when they died, including their share of joint accounts³⁰. Credit debts, such as loans or credit cards, should be written off if the debt is only in the deceased person's name and they had no assets when they died³¹.

Credit unions have two features that often soften the position for families. First, many provide free life insurance on savings, and 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 full¹. The pages on life savings insurance and loan protection explain how these work. Second, many credit unions let you make a nomination, a written instruction as to who receives your shares on death, which can allow the credit union to pay out small balances quickly without waiting for probate. Kilkeel Credit Union reminds members that a nomination covers both the main account and the Easy Shares Account¹⁷, and the page on nominating someone to receive your shares covers the rules.

For the person sorting out the estate, the practical steps are broadly:

1. Tell the credit union about the death as soon as possible, providing a death certificate.
2. Check whether the member made a nomination, and whether the savings carry life savings insurance.
3. Check whether any outstanding loan is covered by loan protection insurance, which would clear it on death.
4. The executor gathers the estate's assets, including the credit union savings, and settles any debts not covered by insurance.

In Scotland, a Funeral Support Payment may be available to help with funeral costs, and it is recovered from the estate of the person who died before inheritance is paid³². The page on what happens when a member dies covers the whole process in more detail.

Where to get help

If a credit union refuses a withdrawal you believe you are entitled to, or you are unhappy with how it has handled your account, start by complaining to the credit union itself, using its formal complaints procedure. Every authorised credit union must have one. If the complaint is not resolved, it can be taken to the Financial Ombudsman Service, which looks at complaints about credit unions in the same way as complaints about banks.

For free, impartial help with money questions:

• MoneyHelper, the government-backed money guidance service, publishes information on credit union accounts and everyday banking⁸.
• Citizens Advice covers banking and account issues, including getting money out and using the Post Office¹⁰.
• Business Debtline and National Debtline publish guides on budgeting, saving and borrowing, and on debts after death¹⁹.
• StepChange offers free debt advice, including on Help to Save and understanding interest charges²⁰.

If you are struggling to repay a credit union loan and that is why your savings are locked, the page on falling behind on a credit union loan sets out the options, and free debt advice charities can help you negotiate with the credit union. If a credit union has failed, the FSCS handles compensation automatically in most cases, and its website explains what members need to do.