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Why are credit unions not very popular? Why are credit unions not very popular?
(2 days later)
Everyone from the Archbishop of Canterbury to the Duchess of Cornwall loves the idea of credit unions.Everyone from the Archbishop of Canterbury to the Duchess of Cornwall loves the idea of credit unions.
Mutually-owned, locally-based and ethically-run, they provide low-cost loans for those who are least well-off - so saving them from the clutches of payday lenders.Mutually-owned, locally-based and ethically-run, they provide low-cost loans for those who are least well-off - so saving them from the clutches of payday lenders.
Yet despite such high-profile support, they have not caught on.Yet despite such high-profile support, they have not caught on.
Across the UK, just 2% of the adult population is a member of a credit union.Across the UK, just 2% of the adult population is a member of a credit union.
In the United States they are used by 46% of consumers.In the United States they are used by 46% of consumers.
There is one apparent reason: Although they offer good value loans, most of them offer a very poor deal to savers.There is one apparent reason: Although they offer good value loans, most of them offer a very poor deal to savers.
And unless more people can be persuaded to save with them, credit unions will never get more cash to lend to needy borrowers.And unless more people can be persuaded to save with them, credit unions will never get more cash to lend to needy borrowers.
AltruismAltruism
Despite changes in the law, most credit unions still do not tell their savers what rate of return they will get.Despite changes in the law, most credit unions still do not tell their savers what rate of return they will get.
Only when a dividend is declared at the end of the year, do people know how their money has worked for them.Only when a dividend is declared at the end of the year, do people know how their money has worked for them.
In most cases they get less than 1.5%.In most cases they get less than 1.5%.
Kate Haywood, a university lecturer from South Wales, got a return of 0.25% from her local credit union last year. So for every hundred pounds she invested, she received the princely sum of 25 pence. Before tax, that is.Kate Haywood, a university lecturer from South Wales, got a return of 0.25% from her local credit union last year. So for every hundred pounds she invested, she received the princely sum of 25 pence. Before tax, that is.
Luckily money is not her motive.Luckily money is not her motive.
"Overall, the benefits to me are not in that return; they are in the fact that I know that money is being used to support other families that need it more," she says."Overall, the benefits to me are not in that return; they are in the fact that I know that money is being used to support other families that need it more," she says.
But in the district of Torfaen, where she lives, there are few who can afford such altruism.But in the district of Torfaen, where she lives, there are few who can afford such altruism.
'Transformation''Transformation'
In fact her local credit union is a path-finder in trying to improve returns for savers.In fact her local credit union is a path-finder in trying to improve returns for savers.
When the law changed in 2012, credit unions were allowed to advertise fixed-rate savings for the first time.When the law changed in 2012, credit unions were allowed to advertise fixed-rate savings for the first time.
Yet in Wales only two credit unions are now doing so, and in Britain as a whole there are still fewer than 30 offering such products.Yet in Wales only two credit unions are now doing so, and in Britain as a whole there are still fewer than 30 offering such products.
That is out of about 400 credit unions in total.That is out of about 400 credit unions in total.
But when the Gateway Credit Union, based in Pontypool, opened a savings account offering 1.75% last year, they were swamped.But when the Gateway Credit Union, based in Pontypool, opened a savings account offering 1.75% last year, they were swamped.
The amount of money they took in doubled, and eventually they had to close the offer to new subscribers.The amount of money they took in doubled, and eventually they had to close the offer to new subscribers.
"It was a transformation for us," says John Richards, Gateway's general manager."It was a transformation for us," says John Richards, Gateway's general manager.
"All of a sudden we had the capital that we needed to lend out to grow the credit union," he adds."All of a sudden we had the capital that we needed to lend out to grow the credit union," he adds.
'Cancer''Cancer'
In the meantime, there are other high-profile supporters determined to make credit unions more popular.In the meantime, there are other high-profile supporters determined to make credit unions more popular.
The former Dragon's Den participant Theo Paphitis has put money into RetailCURe - a new credit union designed to appeal to the 4.8m people who work in Britain's retail industry.The former Dragon's Den participant Theo Paphitis has put money into RetailCURe - a new credit union designed to appeal to the 4.8m people who work in Britain's retail industry.
Many earn less than £10 an hour, and he believes they need help to sort out the peaks and troughs of a monthly income.Many earn less than £10 an hour, and he believes they need help to sort out the peaks and troughs of a monthly income.
During filming for a recent BBC documentary, he met a family who depended on payday loans to make ends meet.During filming for a recent BBC documentary, he met a family who depended on payday loans to make ends meet.
"Seeing what I can only describe as the cancer in our society, and this is payday lenders, at first hand - then there's obviously a requirement out there," he says."Seeing what I can only describe as the cancer in our society, and this is payday lenders, at first hand - then there's obviously a requirement out there," he says.
"At the moment we are seeing payday lenders charging up to 17,000% APR to lend a couple of hundred quid for a month. It's ridiculous.""At the moment we are seeing payday lenders charging up to 17,000% APR to lend a couple of hundred quid for a month. It's ridiculous."
The new credit union, when approved, will help staff in New Look, Next, Rymans, Robert Dyas, Superdrug, and many other High Street shops.The new credit union, when approved, will help staff in New Look, Next, Rymans, Robert Dyas, Superdrug, and many other High Street shops.
Higher ratesHigher rates
However, while it will offer good value loans to help its staff, some will not find the savings rates particularly attractive.However, while it will offer good value loans to help its staff, some will not find the savings rates particularly attractive.
Like most credit unions, it will work on the old dividend principle - declaring the interest rate in retrospect at the end of the year.Like most credit unions, it will work on the old dividend principle - declaring the interest rate in retrospect at the end of the year.
But the aim is to make the returns at least as good as easy access accounts at banks or building societies.But the aim is to make the returns at least as good as easy access accounts at banks or building societies.
"It is our intention to make sure they are highly competitive," says Richard Boland, the chief executive of Retail Trust. "It is our intention to make sure they are highly competitive," says Richard Boland, the chief executive of the Retail Trust, the charity behind RetailCURe.
Nevertheless he admits that the interest rate is likely to be "south of 2%".Nevertheless he admits that the interest rate is likely to be "south of 2%".
Compare that with current accounts in banks and building societies that now offer 3% or more.Compare that with current accounts in banks and building societies that now offer 3% or more.
On the other hand, many banks pay less than 1% on some accounts, so credit unions can offer a better deal.On the other hand, many banks pay less than 1% on some accounts, so credit unions can offer a better deal.
Nevertheless, John Richards of the Gateway Credit Union believes fixed savings rates are the best blueprint.Nevertheless, John Richards of the Gateway Credit Union believes fixed savings rates are the best blueprint.
"We have to offer higher interest rates on savings, and lower interest rates on loans," he asserts."We have to offer higher interest rates on savings, and lower interest rates on loans," he asserts.
While the accountants may find that a difficult challenge, few consumers would disagree.While the accountants may find that a difficult challenge, few consumers would disagree.