Slowly but surely the monopoly of the big high-street banks is coming under threat. Inspired by action sites such as moveyourmoney and angered by the Libor-fixing scandal, hundreds of thousands have moved their accounts away from the big boys in the past year. Many have gone to the likes of the Nationwide, other building societies and the troubled Co-operative. Meanwhile, Tesco, Sainsbury's and Virgin Money are all gunning for banking business, and have the branding to make a real impact.
And there is one other emerging challenger to the banks: the credit union sector. They have been around in some cases for a century or more, and compared with credit unions in the US or Australia they are relatively small fry.
There are around 400 unions operating in the UK, but only 2 per cent of the population are members. The Government has agreed to invest £35.6m in the sector, aiming to double its numbers with an extra one million members by 2019.
The drive will be led by the Association of British Credit Unions Ltd (Abcul), which says that the first wave of 31 credit unions have signed up for the expansion scheme. The plan is for credit unions to pool their resources in a bid to offer members more services such as current accounts and cash Isas.
"Consumers will soon be able to benefit from the latest online technology to sign up to credit union services such as current accounts, budgeting accounts and cash Isas," says Mark Lyonette, chief executive of Abcul.
Credit unions are non-profit financial co-operatives owned and controlled by members, while being authorised and regulated by the Financial Services Authority and covered by the Financial Services Compensation Scheme (FSCS), which means the first £85,000 of a member's savings is completely safe.
Members pool their savings and use the pot to lend to one another in a responsible fashion, with any profits kept within the credit union to reward members, not outside shareholders. The largest is Glasgow Credit Union, which has more than 30,000 members and £100m in assets, equivalent to a chunky building society.
Recent changes should boost the sector even further. Until last year, credit unions paid a yearly dividend on savings, typically at 2 or 3 per cent, but unions can now offer interest like normal savings products, making it easier to compare their rates with those of other providers. The London Mutual, for example, open to people living in Lambeth and Southwark, offers 3 per cent AER on its cash Isa with instant access.
Another recent change is that organisations, as well as individuals, can now become members. This has already led to Bristol Credit Union being the hub of the local currency – the Bristol Pound – and Abcul is hoping that housing associations and community organisations can be persuaded to put some of their reserves with their local credit union.
High-street banks are reluctant to offer small sums to many consumers, forcing many into the hands of eye-wateringly expensive credit sources such as payday lenders and illegal loan sharks. Credit unions are perfectly placed to help plug this gap as they offer extremely competitive personal loans up to £3,000.
"Credit unions are what banking used to be: community focused, local lenders and supportive to customers. Everyone should join their local credit union as a way to strengthen the local economy," says Laura Willoughby from the campaign website moveyourmoney.org.uk.
But not all is rosy in the credit union sector. During the financial crisis dozens had to be closed or bailed out, and only last year Handsworth Breakthrough and Hull East of the River credit unions closed and the FSCS had to step in to compensate members.Reuse content