There are several ways to save money these days, but there are some specific tools and products to make saving easier and to encourage you to save even if you’re on a low income. One financial institution which has consumers at its core is the credit union. We will briefly discuss whether a credit union can help you save money and the other financial services they offer, as well as the current initiatives and schemes available to increase your savings with minimal effort on your part. While saving is integral to financial security, it can be difficult to start and sometimes the slow progress can be a deterrent. Hopefully, the savings accounts below can help you on your savings journey and make the task just a little bit easier.
What is a credit union?
In short: a credit union is a member-led, not-for-profit organisation providing alternative banking services for communities connected by location or industry. Credit unions generally offer standard bank accounts as well as savings accounts, overdrafts and loans to its members.
What are the main functions of a credit union?
Credit unions want to provide a fair way for consumers to bank, with all the profits being reinvested into the organisation and shared among its members. There are no shareholders to take a cut of the profits, maximising the benefits to the members.
Credit unions can also make banking more accessible: where you may be declined for a loan from a bank, as a member of a credit union, you may find your application for a loan from your credit union approved. In this way, credit union loans can be considered similar to payday loans in terms of the high acceptance loans they offer, compared to mainstream banking.
How can a credit union help me save money?
A savings account with a credit union typically earns interest in one of two ways:
- Standard interest rates
- Dividend payments
An interest earning account will work much like a typical savings account from a high street bank. The more you save, the more interest you earn. If your credit union pays dividends, then the more you save, the larger proportion of the dividends you will receive at the end of the year.
In both cases, you’ll find yourself encouraged to save more as the more you save, the more you earn on your savings. The only real difference is how the interest or dividends are paid to its members. Interest payments will be relatively consistent, whereas dividend payments depend on the profits that the credit union has earned in that year.
Some credit unions also offer different types of savings accounts, depending on your specific needs. For example, a standard membership account would be like any everyday savings account. However, a Christmas savings account allows you to save money throughout the year, and the money is locked away until Christmas to help you avoid temptation throughout the year. Christmas can be a big financial burden for many families so this kind of savings account can just slightly ease that stress.
As part of a credit union, you might also find you have easy access to resources to improve your financial education. Understanding financial products and learning good money management are key skills in becoming financially independent. Many credit unions still have branches which means you can also get face-to-face advice and banking services, something which is increasingly uncommon as we move into the digital age.
As well as savings accounts and financial advice, credit unions offer affordable credit to their members who may not have the same opportunities to borrow from more mainstream services. Borrowing from a credit union can include arranged overdrafts, credit cards, small loans and in some cases, even mortgages. Borrowing at affordable rates can help you save as you’ll be paying less in the form of interest repayments.
Alternative Saving Methods
As well as credit union savings accounts, there are other schemes available to maximise your savings. Two popular ones include:
- Help to Save Scheme
- Lifetime ISAs
Help to Save Scheme
The help to save scheme is an initiative set up by the government to help people on low incomes save money. Like a standard savings account, you earn an interest rate on the amount you have saved, however you also earn a bonus which can make a big difference – if you save the maximum amount into your Help to Save account, you could earn a bonus of up to £1200 over four years. One of the main benefits of the help to save scheme is that you can withdraw the funds at any time, so your money is not locked away and inaccessible in case an emergency arises.
Lifetime ISAs
A lifetime ISA is a little more restrictive than the help to save scheme, however almost anyone can open a lifetime ISA. They are especially helpful for first time buyers as you can earn up to £1000 a year in bonuses towards your house deposit. There are penalties if you withdraw the funds for any reason other than a first time house purchase, retirement once you’re over 60 or if you become terminally ill (with less than 12 months to live). If you’re looking for an account for general savings or yearly events, then a lifetime ISA is not the right account to open, however there are other cash ISAs that might be more suitable.
The best way to save is whatever way works for you – even if that’s just putting cash in a jar for a rainy day. Sometimes all you need to get started is a reason to save, but being part of a credit union or the help to save scheme can help you on your way.
