Credit unions vs bank savings accounts

A credit union savings account and a bank savings account do much the same job: they hold your money, they pay something for it, and both are covered by the Financial Services Compensation Scheme up to £120,000 per eligible person, per firm¹. The differences are in how you get in, how you are paid, and what the organisation is for.

A credit union is a not-for-profit financial provider owned by its members, and all credit unions offer savings accounts and loans¹. A bank is a company answerable to shareholders. That single difference shapes everything else: who can join, what the account pays, and what happens to any surplus.

The practical points are these. You can only join a credit union if you share a common bond with its other members, such as living or working in a certain area¹. Your return is usually a dividend that depends on how the union has performed, not a rate set in advance⁵. And credit unions vary enormously in size and services, so what one offers is no guide to what another does³.

How credit union savings differ from bank savings accounts

Every credit union offers savings accounts and loans, and nothing else is guaranteed¹. Beyond that, services vary by branch: savings accounts, loans, foreign exchange, prepaid debit cards and, at some, current accounts¹¹. The larger credit unions add Christmas savings accounts, cash Child Trust Funds, ISAs, budgeting accounts, current accounts and debt management³.

A credit union is a not-for-profit financial provider that helps people access banking products, and it is run by members to benefit communities rather than to make a profit¹. Members' savings are used to fund loans to other credit-worthy members of the same union¹². That is the model in one sentence: the money you save is lent to the person next to you in the same bond, not to an anonymous borrower elsewhere.

There are limits to what a credit union can do. 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 bank¹³. If you need an overdraft as part of your everyday banking, a credit union current account usually will not provide one¹.

For a saver, the practical consequences are these. Your money is doing something specific and local, which some people value. In exchange, you may have fewer ways to reach it, fewer products alongside it, and a return that is decided after the year rather than published before it.

Who can join a credit union: the common bond

All credit unions in the UK may only accept members who have a common bond¹⁴. That is the rule that decides whether a particular credit union is open to you at all.

The bond can take several forms. Members might live or work in the same area, work for the same employer, belong to the same trade union, or belong to the same church or other association¹⁵. In practice this typically means a credit union is either based in its local community or draws its members from one sector, such as the police¹⁶. The legal framing is the same: all members must live in the same area, or work for the same employer, or be a member of a trade union or other special interest group⁴.

There is a family route in. 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 join too³. Anyone in the house of a person with a common bond can usually join¹⁵.

To become a member, you need to visit or call your chosen credit union to confirm what information you need to join¹. There is no single national application, because each union sets its own bond and its own paperwork.

Dividends or interest: how each one pays savers

A bank savings account pays interest at a rate the bank sets and publishes. A credit union savings account either pays interest or a share of any profits¹. Where it pays a share of profits, the profit made by the credit union is shared evenly among savings accounts, and this is called the dividend, with some kept back to improve services³.

The dividend is not a rate agreed in advance. Returns depend on how well the union performed, and are usually paid as an annual dividend⁶. A credit union may describe the possibility of earning a dividend when the credit union does well¹⁹.

That is the trade-off in plain terms. A bank account with a fixed rate tells you what you will get. A credit union dividend tells you what the union can afford after the year is out, which could be more or less than a bank would have paid, and is not guaranteed.

If you are comparing returns, the same discipline applies as anywhere else: check what the account actually pays and how the rate is set. Our guide to AER, gross and fixed or variable rates explains how to read a quoted rate, and compound interest explains how the timing of a dividend or interest payment changes what you end up with.

Access to your money and saving small amounts

Access is where credit unions and banks diverge most in day-to-day use. Credit unions may have their own limits as to how much you can save²⁰, and some will ask you to build savings first before you borrow¹⁵.

Ways to pay in are broad. 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 points³. One credit union's instant access savings account lets you have your wages or benefits paid in, transfer savings to your bank account using its app, and access the account online, on the phone or in a branch¹⁹.

Getting money out works differently from a bank. 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 account⁵. Credit union current accounts can be used at a local Post Office for both withdrawals and deposits²¹.

Credit unions are built for small, regular amounts. One published a news article showing how small daily and weekly amounts add up over a year, encouraging regular saving²². If you are saving a few pounds a week rather than a lump sum, that rhythm suits the model.

Christmas savers, junior and school savings schemes

Credit unions run dedicated Christmas and holiday savings accounts, which lock money away for a season rather than leaving it available all year²³. These sit alongside the ordinary savings account and are a common reason people join. Our guide to Christmas savings clubs and accounts covers how these schemes work more generally.

Children's saving is a long-standing part of the model. Credit unions run school savings schemes, and one announced new post boxes for its School Savings Scheme²⁴. Another introduced a new online joining form for junior accounts, making it quicker to open an account for a child²⁵. One young savers scheme credits a £25 bonus to accounts that deposited monthly from January to June 2027 and held £25 on 30 June 2027, paid on 1 July 2027²⁶.

For comparison, children's bank accounts can be opened for kids as young as six²⁷. So a child can save with a bank from that age, and a credit union junior account is an alternative route, usually reached through a family member's membership or a school scheme. Our guide to children's savings accounts sets out the wider options.

Saving to borrow: loans for members

The savings and the borrowing are connected. Members' savings are used to fund loans to other credit-worthy members¹², and you need to be a member of a credit union to get a loan from it, with some asking you to build up savings first²⁸. Usually, in order to borrow, you must already have a savings account with the credit union⁶.

How much you can borrow is tied to what you have saved. 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 union⁹. You usually need a history of saving with a credit union before you can borrow long-term loans and mortgages²⁹.

Some credit unions lend as soon as you become a member, while others lend only after you have saved for a set period, and affordability is checked against the money you have left after paying bills⁵. Credit unions are described as an alternative borrowing option to payday loans¹⁵, and can be a more affordable alternative to banks or expensive payday loans, sometimes offering cheaper loan rates²⁸.

That is not the whole picture. Credit union loans are often more expensive than personal loans from a bank or building society³⁰. So the comparison depends on what you are comparing against: against a payday loan, a credit union is usually cheaper; against a mainstream personal loan, it may not be. Our guide to loans covers how personal loan pricing works.

FSCS protection: up to £120,000 per person at both

This is the part that surprises people most often, in a good way. Just like most banks, up to £120,000 per person is protected in a credit union account¹. FSCS can pay back any money you hold with a failed credit union, up to its compensation limit of £120,000 per person².

The scheme is automatic. Deposits are automatically compensated up to £120,000 per eligible person, per bank, building society or credit union⁷. The limit is £120,000 per person or company, per authorised firm³¹, and £120,000, or £240,000 for joint accounts, per authorised firm⁸.

The limit applies per banking licence, not per brand. FSCS protection for banks, building societies and credit unions is up to £120,000 per person per banking licence³². That matters if a credit union shares a licence with another firm, because your balances with both count together towards the same £120,000. Our guide to how FSCS protection works for savings explains how to check which firms share a licence.

The limit rose recently. It protects up to £120,000 of savings per individual, per financial institution, and before 1 December 2025 it was £85,000³³. Some older guidance still quotes the previous figure: one credit union site states that all deposits are protected up to the value of £85,000 per person³. The current limit is £120,000.

Help to Save and other government schemes

Help to Save is a government savings scheme for people getting Universal Credit³⁵. If you get Working Tax Credit or Universal Credit, you may be able to open a Help to Save account³⁷, and you can apply online³⁸. The scheme pays 50p for every £1 saved over 4 years to people entitled to Working Tax Credit or receiving Universal Credit³⁹.

The scheme is changing. The government has confirmed that the reformed Help to Save scheme will be delivered through a multi-provider model¹⁷, which will enable financial institutions to offer Help to Save accounts directly to eligible customers³⁰. National Savings and Investments administers Help-to-Save accounts for the government³².

Eligibility is set to widen. From 2028 the scheme will be opened up to parents and carers on Universal Credit⁴⁰, and from April 2028 the earning criteria will be removed so that anyone on Universal Credit, including people not working, will be eligible, with the government estimating an additional 1.5 million households become eligible⁴¹. The expansion will include all Universal Credit claimants who receive the child element, the caring element or both⁴².

Our guide to Help to Save covers the bonus, the limits and how withdrawals work. If you are weighing it against another government-backed account, Help to Save or Lifetime ISA compares the two.

Where to get free help

MoneyHelper, the government-backed money guidance service, publishes information on credit union current accounts and on choosing an account for your Universal Credit payment¹. The finder at findyourcreditunion.co.uk lists credit unions by area and type³.

For debt problems rather than saving, free and impartial help is available from StepChange and Business Debtline, both of which publish guidance on credit unions as a borrowing option¹⁵. If you are struggling with bills, emergency funding and grants are covered by Turn2us and Shelter⁴³.