Credit Unions Explained

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Credit Unions Explained

Tired of low high-street interest rates? Looking to put your money to use for your community? Trying to build up a record of good credit or apply for a fair, manageable loan?

All over Britain, people are realising that traditional accounts with mainstream banks are just one of their many options. And they’re increasingly voting with their feet — for instance, the number of credit union members doubled between 2012 and 2018.

Credit unions are community-led institutions that provide banking services to people and companies, usually in a specific area or sector. They’ve been around since the middle of the 19th century, and it’s estimated credit unions have nearly 300 million members worldwide.

Credit unions are a vital lifeline for many people, offering them a way to save money or borrow small amounts without annoying fees or sky-high interest rates. For many others, they’re simply a convenient, hassle-free way to save money. 

This article is your guide to credit unions. We’ll explain how they work and their potential benefits. We’ve also included a special section on the NHS credit union.

How Does a Credit Union Work?

Credit unions make money like any other financial institution — by encouraging people to deposit their money with them for safekeeping, then carefully lending that money out to be repaid with interest. The similarities between an ordinary bank and a credit union mostly stop there, however. 

First of all, credit unions revolve around something called a “Common Bond”. This can be as simple as a rule that all members live in a particular area or work in a particular sector. 

Second, credit unions are organised as non-profit co-operatives. This means that all customers become members of the union, entitling them to attend decision-making meetings and receive a share of any money the organisation might make.

Finally, credit unions are almost always run with the intention of improving the lives and finances of ordinary people in a given community. This means they usually offer reliable and competitive savings products, helpful financial advice and a uniquely human touch to their members.

All in all, credit unions are a financial institution with a difference!

What is the NHS Credit Union?


Like all credit unions, the NHS Credit Union is a financial co-operative, owned and controlled by its members.
They help care for the financial health of members across Scotland and the North of England.  Almost 20,000 NHS workers are currently enjoying the benefits of being an NHS Credit Union member.
Founded in Glasgow in 1998 by a hospital union representative, their mission is to promote financial well-being and a savings culture in the NHS industry alongside reducing financial stress in staff and providing ethical financial assistance to those who need it.


For those in the rest of the country, however, coverage is slightly patchier. There are many community-based unions with relationships with NHS trusts, offering membership and savings products. You could ask your employer, or use this handy credit union finder to join your locally-based union.

If you live beyond the NHS credit union’s catchment area but you’re looking for affordable finance, you might benefit from some of our products. At Salad Money, we offer small, affordable loans and free financial education to NHS and public sector workers. 

So, if you’re in financial difficulty, don’t be driven to high-interest borrowing — see what Salad Money can do.

What are the Advantages of a Credit Union?

Credit unions in the UK are fully regulated by the same organisations that supervise the activity of ordinary banks. Savers with credit unions also enjoy the same level of protection as savers with mainstream institutions, with deposits backed to £85,000 in case the union collapses. This, combined with their sometimes-sizeable annual dividends for members, can make them an attractive alternative to high-street banks!

Another advantage of credit unions is their community-oriented outlook. When ordinary banks make money, its shareholders take this as profit. As a result, it almost always ends up leaving the communities where the money was actually made! 

With a credit union, however, any profits are reinvested into the wider community in the form of loans, dividends or financial education. By this process, credit unions can become community lynchpins, bringing benefits that reach everyone and creating what the US government calls a “cycle of mutual assistance”.

Finally, credit unions offer cheap credit to their members, alongside financial advice and education. The absolute maximum interest a British credit union can charge on a loan to a member is 42.6% APR, though rates are far lower for established members borrowing small sums. 

This low-APR, community-oriented approach helps those who might be turned away from high-street banks get support to pay surprise bills, invest in their education or start a business — all without landing themselves in financial trouble.

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