In Raleigh, North Carolina, new homeowners John and Jennifer Hall made a smart decision: instead of choosing a risky mortgage scheme from a bank — a decision that has been catastrophic for so many of their contemporaries, the couple applied for a loan through the North Carolina State Employees’ Credit Union (SECU).
The couple did their homework, and concluded that it made better sense to work with a non-profit financial cooperative to purchase their first home. Aside from lower fees and closing costs, SECU did something the others didn't: a credit-union employee sat down with the couple to explain the pros and cons of the various mortgage options. Because credit union employees are non-commissioned, there was no pressure, enabling the couple to see the credit union as a trusted advisor.
"There are so many young folks who don't realize the advantage of going with a co-op," says John, who believes that all North Carolinians benefit from non-profit financial cooperatives that help to keep other financial institutions in check by ensuring citizens remain eligible for competitive rates and fees. "Being a member can make a tremendous difference in your financial life!"
You Belong
Are you are frustrated with your bank? You may be tired of paying endless fees, high interest rates and receiving poor customer service. And in light of the current financial crisis, you may find yourself among those with good credit experiencing trouble getting a car or home loan, the result of tightened lending standards due to the banking industry’s own.
Fortunately, you have options.
Credit unions offer are a fresh alternative to corporate banks while providing the same kinds of services. As a credit union member, you can open a checking or savings account, buy a certificate of deposit and get a loan. Some credit unions can even help invest for your retirement or take financial planning courses before you buy your first home.
Credit unions are co-operative businesses, owned by members (depositors) who share something in common, such as where they work, live or go to church. Because credit unions tend to be smaller and cater to a select group of people, you can expect a more personal relationship between the staff and the members.
Unlike commercial banks that generate profits for owners and outside shareholders, credit unions channel profits back to members in the form of lower fees, better interest rates and higher dividends. According to the American Banker/Gallup poll, credit unions consistently rank high among consumers for service and customer satisfaction every year since 1983.
Keep Your Money Safe
Credit unions have emerged as a safe haven for consumers. Because credit unions avoided the risky loans and exotic investments that brought down so many banks, they remain relatively untouched by the recent financial crisis, credit union members have peace of mind knowing their money is safe.
Credit unions are financially solid because they stick to conservative banking practices, such as requiring down payments and income verification on mortgage loans. While many banks were chasing ever more exotic ways to make money, credit unions stuck to the basics.
Many people are leery of putting their funds in the hands of a credit union because they believe the credit union isn’t FDIC insured. Nothing could be further from the truth. Like banks and savings institutions, credit unions deposits are insured up to $250,000 by the federal government, providing the same level of protection for investor assets as any banking institution.
Credit Unions Still Lending
Commercial banks have recently curtailed lending, even people with good credit. The result is that many consumers are having trouble getting home and car loans due to tightened lending standards.
This is not the case with credit unions, which continue making loans available to people with good credit histories. In fact, credit unions are now experiencing higher loan volumes as consumers turn to them in greater numbers since the recent banking sector meltdown.
According to the CUNA, credit unions made 36 percent more small business loans in the first half of 2008 than the same period in 2007, a reflection in part of the ability of credit unions to lend while banks horde cash.
Now, as conventional banks avoid lending even to credit worthy buyers, credit unions are poised to take a much larger share of the traditional lending business – including homes, cars and small business loans.
Join a Credit Union Today!
Though once associated with trade unions, hospitals, universities and other large employee groups, credit unions are increasingly open to the general public. There are also “select employee groups” that offer credit union members to a network of affiliated businesses.
You'll find many reasons to join a credit union, including:
As of 2005, there are 9,346 credit unions in the United States, which means that just about any consumer can find a credit union they are eligible to join.
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These days items of not just want, but need, tend to be becoming more and more expensive and with interest rates constantly rising at the banks, credit unions are becoming the more financially attractive alternative.
Credit unions are financial co-operatives owned and controlled by their members who combine savings to offer low-cost and flexible financial products to their members.
Each union has a 'common bond' which determines who can join. A ‘common bond' is simply having something in common with the existing members such as living or working in the same area, work colleagues or people who belong to the same association, such as a church or trade union.
If you are not able to save every week or month or have a poor credit record, a credit union may be more sympathetic to your needs than a larger financial institution would be.
Credit unions welcome irregular savers, and all savers usually get the same percentage dividend on their savings aiming to pay a dividend on savings once a year to all their members. This can be as much as 8% of the amount that people have saved, but is typically 2% or 3% depending on profits.
As mutual societies, credit unions are non-profit organisations and must each year set aside enough money to ensure they remain financially stable. All profits are used to make interest rates as cheap as possible for borrowers and rates of return attractive for savers.
With a credit union you can save as much or as little as you like, weekly, monthly or as often as you wish. You can pay in at convenient local shops or collection points, or direct from your wages.
You do have to prove you can save before you can take out a loan with a credit union. Once you have satisfied this requirement, the total amount you can borrow from your credit union is based on what you will be able to repay. They can also tailor their services to suit your individual circumstances.
The interest a credit union can charge on a loan is limited to 1% a month. So a loan of £100 costs no more than £1 each month in interest.
Typical interest rates for loan repayments are just 6% and members can also automatically have free life insurance.
The main act of Parliament governing credit unions was the Credit Unions Act 1979 until 2002 when the FSA (Financial Services Authority) took over as a regulating body. The FSA sets out the objectives of a credit union stating that credit unions must have their accounts audited annually by a qualified auditor and be insured against fraud or theft.
Credit unions cannot lend all their members' savings or invest the remaining money in risky ventures. Instead they must put it into bank deposit accounts and the most reliable investments, such as government bonds. This enables them to get the money back if they need to.
A few points to keep in mind
You cannot simply join whichever credit union you think is best. You have to meet the common bond requirements yourself, or be a close family relation to someone who does and is already a member.
You cannot join a credit union just to get cheaper loans. You usually have to save with them first. The rules on this vary between credit unions.
You cannot save or borrow in the name of a business you may be running. Only members can borrow from a credit union and borrowing must be in your name even if you want to use the money for a business you run.
Credit unions typically have few branch offices and few, if any, ATMs.
Some credit unions don't return cancelled checks to you.
Your local credit union may not offer you as many services as you can get from the neighborhood bank. Check to see what's offered. You may end up deciding to keep accounts at each, for different purposes.
The UK credit union movement is still relatively small and is restricted by law from gaining size or offering services which could compete with profit-maximising banks.
Check with your local council or citizen's advice bureau for a list of credit unions in your area. If you or your partner is working, the trade's union representative or the people handling the wages should be able to tell you of any credit union's covering the industry.
]]>If you are looking to borrow some money to pay for a dream holiday, buy a car or make some improvements to your house, it's likely that your first port of call in looking for finance will be your bank. After all, you already trust them to look after your money and their current loan rates are good so why go anywhere else?
While it's certainly convenient to approach the bank for a loan, the process of applying for finance can be a rocky road and, at the end of it all, you might find that your income isn't enough to finance the repayments. Similarly, if you've had credit problems in the past it's highly likely that you'll be forced into punitive interest rates or having your application turned down together. If this happens, you might then try your luck with one of the multitude of loan companies who advertise on television and in the press, or found on the internet. However, there is another option that many people don't know exists: the local credit union.
Credit Unions are financial co-operatives owned and controlled by their members. They generally operate in areas where low incomes are common and offer savings and great value loans to customers. Another benefit of Credit Unions is they are local, ethical and know what their members want. Each Credit Union has a 'common bond' which determines who can join. This bond may be for people who live or work in a particular area, work for the same employer or belong to the same association or club, such as a church or trade union.
Credit Unions work by having members pool their savings together, which can then provide a fund from which are made to other members. Borrowers then pay interest on the money loaned to them as they would if the loan had been through a bank. As the money in the fund belongs to individuals, the credit union 'rents' the funds from its savers, who each year receive a dividend from the money they rent to the credit union. As a result, credit unions should offer its savers a good return on the money that is placed in the fund.
In order to operate, a credit union must be successful in attracting a sufficiently large amount of savers to enable it to hold sufficient liquidity to enable it to meet members' requests for loans, share withdrawals and overheads. Furthermore, dividend payments to savers and the credit union’s operating costs have to be met out of the credit union’s profits, so a strong fund is essential for the credit union's success. As the main source of income for a credit union comes from the interest charged on members' loans, it is very important that the credit union be proactive in marketing the benefits and availability of their services.
For peace of mind, credit unions have to be registered and regulated by the Financial Services Authority, who also regulates banks, building societies and all other providers of financial services in Britain. Furthermore saving members of credit unions are protected by the Financial Services and Compensation Scheme (FSCS), who provide a safety net for customers of financial firms in the event of the firm going out of business.
When looking for finance, it is normally good practice to shop around the various resources available to get the best deal on personal loans. For some, this will involve trawling the various banks on the High Street in search of a good rate, while others will turn to the internet and price comparison websites in order to find and compare loan rates. However, bear in mind that if you can't find a deal to suit, or if the bank says 'no' it might be worthwhile having a chat with your local credit union - they might say 'yes'.
When you are on a low income, it is very difficult to get credit. And yet, most of us could not manage certain purchases outright, even if we get a decent wage. This is where the Credit Union offers a real alternative.
Run by a volunteer board of directors which are elected by its members, a Credit Union is basically a financial cooperative, owned and controlled by its members.
They offer affordable loans and encourage members to save. By law, the maximum a Credit Union can charge is 12.7% and this is charged on an ever reducing balance, which means that every week or month, you will pay less and less interest. There are no hidden charges and you will not be penalised for repaying the loan early.
Anyone can join a credit union, as long as they are part of the 'common bond'. This could be people living in a shared area, working for the same employer or belonging to the same association.
So how do you start your own credit union?
The average time it takes to establish a credit union is between one and three years. The minimum number of members required for the initial set up is 21 and the maximum number of members once you are established is limited to just 5,000 people.
After you have secured enough members to start your union, there are a number of tasks which will need to be completed.
• Firstly, decide on a common bond – where your credit union will operate
• Get a group together with the necessary range of skills and experience to develop a successful community business
• Carry out a pledge drive – find out just what demand there is for a credit union in the area you wish to service and use the information obtained to inform your business plan projections
• Join The Association of British Credit Unions (ABCUL) as a Study Group member – for just £35 a year, you get a full manual and access to all of ABCUL's information services
• Discuss and research your plans with the regulators – The Financial Services Authority (FSA) will need to approve your common bond and satisfy itself that your business plan and policies and procedures meet its standards. The FSA website www.fsa.gov.uk gives the regulatory requirements Credit Unions now have to meet to safeguard member's money in the same way as banks and building societies
• Obtain funding & sponsorship -and include the figures in your business plan
• Choose officers – Officers and employees of the credit union will need to obtain ‘Approved Persons Status' from the FSA, and will need training for their roles
• Think about marketing & promotion and how you will meet your business plan targets
• Launch your credit union.
It is also vital to secure sponsorship from local sources, such as employers, housing associations, business groups or councils as setting up your own credit union can initially be an expensive process. ABCUL estimates the costs at between £30,000 and £70,000 in setting up a scheme with premises and staff for the first three years.
Credit unions in the UK are also required to reach a statutory minimum reserve of 10 per cent of aggregate assets to protect their members. Until they reach this level, credit unions should transfer at least 20 per cent of their surplus into reserves each year.
Covering you and your members
In the UK a credit union has to take out insurance to protect its members' funds from fraud and mismanagement. However, there is no industry-wide compensation scheme to protect members' savings should a credit union become bankrupt.
Before you set up your credit union from scratch, consider investigating if credit unions in neighbouring areas would be willing to expand their common bond to your locality or place of employment.
Many credit unions are expanding their common bonds to cover much larger populations, and your area may already be included in someone else's plans. ABCUL can advise you on initiatives happening where you are, and put you in touch with the right people.
To the wider community, a Credit Union improves the general financial knowledge of its member and offers training to its volunteers investing in local money.
It helps restore a sense of pride in disadvantaged and disaffected communities and provides a means of targeting financial exclusion.
For further advice and assistance on setting up your own credit union visit www.abcul.org.