Being a member of your local credit union lets you save and borrow – and be part of a fantastic co-operative that’s helping local people in severe financial need, says Ann Link

Credit unions are owned by their members and help keep money local. Our nearest is based in Hove and anyone living or working in East Sussex and Brighton & Hove plus members of Unite in the South East Region can join.

Transition Town Lewes has supported East Sussex Credit Union (ESCU) ever since we had a Better Banking group in 2011, and two of us of have been volunteers with it.

How it works

A credit union is a not-for-profit savings and loans co-operative. It provides loans to people who may not be able to get credit from traditional banks (and who might otherwise resort to loan sharks or exorbitantly-priced payday loans). A credit union can also help people establish a savings habit, often for the first time, as loan repayments include a savings element, which is held as collateral against the outstanding loan balance.

Joining East Sussex Credit Union requires a one-off £5 membership fee and members need to keep a minimum of £1 in their account. ESCU currently has over 8,500 members from all sections of the community, collectively saving over £3 million. The directors are unpaid, and volunteers assist the paid staff.

Not being banks, credit unions cannot loan more than the total of savings (ESCU currently loans more than £2 million). However, savings are covered by the Financial Services Compensation Scheme guaranteeing up to £85,000 as with banks: the current CU savings limit is £45,000, and deposits can be far lower. People can save via payroll if they work for an employer that has joined ESCU’s workplace savings scheme called Chorus.

The cost of loans

Loan interest rates vary from 12.7% APR to 42.6% APR, depending on the amount and time period. For example, borrowing £1,000 over 12 months will cost £100/month. The total amount repayable is £1,206 which includes interest at 42.6% APR.

There are no hidden charges, and the credit union treats people individually, rather than according to a bank formula, so it may be able to offer loans where others would not. On the other hand, it is vigilant in avoiding defaults, in order to remain in business.

Loans for travel

ESCU offers other services too. There is a saving for members of £146 on the cost of an annual bus pass to Brighton (NetworkSaver), and there are bus ticket loans which cost less than paying for a monthly ticket. Young savers (under 16) can also benefit from a 10% discount on annual bus tickets. ESCU is also currently offering loans for electric bikes: successful loan applicants have to become members of ESCU, paying the small one-off membership fee of £5.

Earning interest on savings

As ESCU is a membership organisation, savings accounts receive a dividend – a share in the organisation’s profits – rather than a fixed rate of interest.

Dividends are paid as a percentage of a member’s savings, with the aim that as the credit union grows so will members’ dividends. In years that ESCU doesn’t make a profit, no dividend is paid.

ESCU’s Young Savers accounts for children aged 0-16 do receive 1% interest, which is competitive with most high-street banks.

The bigger benefits

ESCU present numerous community benefits, which should make it of interest to anyone looking for an ethical home for their savings. A lot of the union’s capital is lent to people in severe need. It has enabled many people to escape from exorbitant credit cards, payday loans, and loan sharks (who are targeting poorer areas of Lewes as well as Brighton & Hove).

ESCU also provides local employment, and all the interest paid on loans stays within the local area rather than being diverted to outside shareholders.

Joining up

ESCU continues to grow and provide new services to members. It has a free mobile banking app that can be downloaded from app stores and used to join the credit union, apply for loans and manage accounts. Members can also manage accounts through the secure member area on the ESCU website. Learn more at www.eastsussexcu.org.uk.