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| Is your cash safe with the struggling credit unions? | Is your cash safe with the struggling credit unions? |
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| Credit unions are frequently touted as offering an ethical alternative to banks – but are they a safe place to put your cash? UK credit unions are collapsing at a rate of one per month at present, and the liquidator of the latest to go under has told Guardian Money there will almost certainly be more casualties. | Credit unions are frequently touted as offering an ethical alternative to banks – but are they a safe place to put your cash? UK credit unions are collapsing at a rate of one per month at present, and the liquidator of the latest to go under has told Guardian Money there will almost certainly be more casualties. |
| Five credit unions have so far ceased trading this year, and this comes on top of the six that collapsed in 2012 and the seven that went under in 2011. The latest is South Warwickshire Credit Union, based in Stratford-upon-Avon, which was put into compulsory liquidation on 29 April. | Five credit unions have so far ceased trading this year, and this comes on top of the six that collapsed in 2012 and the seven that went under in 2011. The latest is South Warwickshire Credit Union, based in Stratford-upon-Avon, which was put into compulsory liquidation on 29 April. |
| Yet, while some are clearly struggling, the sector is in the midst of a major expansion. It was announced on Tuesday that a new project aims to attract up to a million more people into membership over the next five years, and help these not-for-profit co-operatives take on the payday lenders. | Yet, while some are clearly struggling, the sector is in the midst of a major expansion. It was announced on Tuesday that a new project aims to attract up to a million more people into membership over the next five years, and help these not-for-profit co-operatives take on the payday lenders. |
| Most of those that have ceased trading have tended to be small, with perhaps a few hundred active members. And it is vital to emphasise that credit unions are covered by the Financial Services Compensation Scheme (FSCS), which protects savings up to £85,000 – which covers about 98% of people. The vast majority of members get their money back within a week. | Most of those that have ceased trading have tended to be small, with perhaps a few hundred active members. And it is vital to emphasise that credit unions are covered by the Financial Services Compensation Scheme (FSCS), which protects savings up to £85,000 – which covers about 98% of people. The vast majority of members get their money back within a week. |
| The first credit union to cease trading this year was the Cornwall and the Isles of Scilly Credit Union, trading as Cornish Community Banking, which had more than 2,100 saver members and was placed into liquidation on 18 February after being hit by bad debts on its loans. It was followed on 6 March by Severn Four Credit Union, based in Bristol. On 22 April, Marches Credit Union, which catered for people living in parts of Herefordshire and Powys, went into liquidation. A few days later, Portadown Diamond Credit Union in Northern Ireland, with nearly 1,600 savers, went out of business, followed by South Warwickshire Credit Union. | The first credit union to cease trading this year was the Cornwall and the Isles of Scilly Credit Union, trading as Cornish Community Banking, which had more than 2,100 saver members and was placed into liquidation on 18 February after being hit by bad debts on its loans. It was followed on 6 March by Severn Four Credit Union, based in Bristol. On 22 April, Marches Credit Union, which catered for people living in parts of Herefordshire and Powys, went into liquidation. A few days later, Portadown Diamond Credit Union in Northern Ireland, with nearly 1,600 savers, went out of business, followed by South Warwickshire Credit Union. |
| There are around 400 credit unions in the UK, and their core products are savings accounts and loans, though some offer current accounts and mortgages. They frequently offer best-buy rates for people looking to borrow smaller sums as, by law, they cannot charge more than 2% interest a month on the amount owed – an APR of 26.8%. That compares with the 4,214% APR charged by Wonga. | There are around 400 credit unions in the UK, and their core products are savings accounts and loans, though some offer current accounts and mortgages. They frequently offer best-buy rates for people looking to borrow smaller sums as, by law, they cannot charge more than 2% interest a month on the amount owed – an APR of 26.8%. That compares with the 4,214% APR charged by Wonga. |
| Paul Brindley of Midlands Business Recovery, the liquidator of South Warwickshire Credit Union, says he believes others will go out of business this year. He says many are being deprived of much-needed cash because of a combination of factors. They can't lend enough money to enough people who are willing, and able, to repay because of their rules on responsible lending. Meanwhile, when debtors get into trouble, they will often repay the payday loans with high interest rates first, and leave the credit unions until last for payment. And the courts are "taking a lenient stance", often allowing people to pay off their debts at perhaps just £5 a week. | Paul Brindley of Midlands Business Recovery, the liquidator of South Warwickshire Credit Union, says he believes others will go out of business this year. He says many are being deprived of much-needed cash because of a combination of factors. They can't lend enough money to enough people who are willing, and able, to repay because of their rules on responsible lending. Meanwhile, when debtors get into trouble, they will often repay the payday loans with high interest rates first, and leave the credit unions until last for payment. And the courts are "taking a lenient stance", often allowing people to pay off their debts at perhaps just £5 a week. |
| So should people be worried about what seems to be a spate of credit union failures? The FSCS message is "your savings are safe", and that when a credit union goes under, it pays the vast majority of claims well within its seven-day target and complicated claims within 20 days. | So should people be worried about what seems to be a spate of credit union failures? The FSCS message is "your savings are safe", and that when a credit union goes under, it pays the vast majority of claims well within its seven-day target and complicated claims within 20 days. |
| Mark Lyonette, chief executive of Abcul, the Association of British Credit Unions, told us: "Yes, of course they are safe – they are as safe to put your money into as any bank or building society." He adds that as a percentage of the sector, those that have failed are "actually a really small part", and that people need to remember how many banks have had to be propped up. | Mark Lyonette, chief executive of Abcul, the Association of British Credit Unions, told us: "Yes, of course they are safe – they are as safe to put your money into as any bank or building society." He adds that as a percentage of the sector, those that have failed are "actually a really small part", and that people need to remember how many banks have had to be propped up. |
| • To see if there is a credit union you can join search at findyourcreditunion.co.uk | • To see if there is a credit union you can join search at findyourcreditunion.co.uk |
| Top savings accounts | Top savings accounts |
| Nationwide BS | Nationwide BS |
| Yorkshire BS | Yorkshire BS |
| Coventry BS | |
| Powered by MoneySupermarket for the Guardian | Powered by MoneySupermarket for the Guardian |