Changes to the Credit Unions Act could open up new opportunities for savers and allow Credit Unions to compete more effectively with banks in the UK.
The new rules which came into force on Sunday mean that credit unions can now offer interest on deposits which should make it easier for consumers to compare rates with those offered by banks. Chief Executive of the Association of British Credit Unions (ABCUL), Mark Lyonette said:
"The new rules mean credit unions can now compete more effectively with banks and other lenders to provide fair and affordable financial services to individuals and organisations."
Previously credit unions were only able to offer dividends retrospectively which meant that it was difficult for consumers to see at a glance how rates compared in performance to those offered by banks or building societies.
The changes mean that credit unions could soon begin appearing in best buy tables.
Credit unions are controlled by their members with any profits going back into the union, the community, or directly to members. Credit unions operate as co-operatives without outside shareholders.
Rules on who can join a credit union have also been relaxed. Previously credit union membership could only be offered to those with a "common bond" such as belonging to the same trade union, or community organisation. Credit unions will now be able to operate on a much more loosely defined membership basis, such as offering membership for those belonging to a certain geographical area.
Groups, organisations and some companies will now be able to use credit unions too, instead of membership only being offered to the individual as was previously the case.
Credit unions are much more common in other parts of the world such as Australia and the US, but have so far failed to become popular in the UK. The new rules could mean that credit unions will appeal to a much broader base, Lyonette explained:
"Credit unions will be able to reach many more people, helping them to develop a savings habit, which can only be good for communities."
Credit unions are regulated by the Financial Services Authority. Members who hold their deposits in a credit union are protected by the Financial Services Compensation Scheme so the first £85000 held is safe in the event of financial disaster.
Use our savings section for more information on different savings options.