Why Save with Credit Union?

[ClubMan]

dundalk cu now charge 6.95% interest which compares favourably with a lot of banks especially for the likes of a car loan. they also have an atm with their own card if required.

What rules do they have on maintaining money in shares/deposits while borrowing? Does the rate reflect the cost of having to do this if applicable? Is the rate a CAR?

 

[Tadhgin]

Credit Unions in this part of the country (Sunny South East) have been paying dividends of between 2.5% and 3.0% this year. Loan rates vary from 4.5% tp 12.68% APR, but seem to be averaging out at about 7 to 7.5% APR. And quite a few offer interest rebates or refunds to borrowers. All of this on top of free-to-members life savings assurance, the cost of which is borne by the credit union. And on top of this, credit unions provide free to members Loan Protection Insurance. And very many credit unions provide Free-to-members Permanent and Total Disability Insurance. And Many also provide Death Benefit Insurance on a free-to members basis.

Of course that is nothing to do with the significant investment that credit unions make in supporting local clubs, community associations, and other community activities.

So maybe you should get past the negative press being churned out by the sceptics. Credit Unions plough our surpluses back into mutual schemes for our members.

 

[ClubMan]

Loan rates vary from 4.5% tp 12.68% APR, but seem to be averaging out at about 7 to 7.5% APR.

According to whom/what?

And quite a few offer interest rebates or refunds to borrowers.

With respect to the maximum 1% p.m./12%+ APR that they could charge and not the rates mentioned above presumably?

All of this on top of free-to-members life savings assurance, the cost of which is borne by the credit union.

Which is a member owned organisation so the cost is ultimately borne by the members?

And on top of this, credit unions provide free to members Loan Protection Insurance. And very many credit unions provide Free-to-members Permanent and Total Disability Insurance. And Many also provide Death Benefit Insurance on a free-to members basis.

These are not truly free. They must be paid for by somebody. As above even if the CU bears the cost it is ultimately the members who pay.

At least most of "the skeptics" don't have any vested interest. I am a CU member but I don't really believe most of the CU hype to be honest.

 

[Miles]

Loan rates vary from 4.5% tp 12.68% APR, but seem to be averaging out at about 7 to 7.5% APR.

Ballyhaunis Credit Union are offering 6.5% for car loans with free life loan protection insurance. Accross the border in Roscommon, Castlerea CU are offering car loans at 7% with the free life loan cover.

 

[ClubMan]

What, if any, requirements are there to keep money in shares/on deposit while borrowing and has anybody figured out a way to factor this into the "true" APR cost of credit?

 

[Jethro Tull]

Word of warning to everyone, no such thing as a free lunch. All 'free' benefits are paid for as Clubman says. Its similar to when a general insurer advertises 'Free breakdown assist' or 'additional benefits included as standard'. The base premium is loaded for any of this 'free' benefits.

 

[frank73]

I've had money in the local credit union since i was 19 (now 34) and for the last probably 10 years have had a balance of in or around 20K (rainy day money). I've gotten a few small loans from them over the years and have always found them to be great, almost "family run". I've always kept the balance in there as i thought that when the time came for a more substantial loan, the rates would be more favorable that a bank. I have to say though that I'm now starting to question the sanity of this as, perhaps what i would save on the loan rate (3% ish), I'm surely losing out on from the small dividend returns as opposed to putting the cash into a higher interest paying (term) account (6-7%) ? I don't know, maybe I'm starting to become a bit mercenary...

 

[Slim]

Clubman wrote

What, if any, requirements are there to keep money in shares/on deposit while borrowing and has anybody figured out a way to factor this into the "true" APR cost of credit?

There is no longer any formula which is applied to the amount required to be held. It is the case that a first loan will be a factor of savings but as trust is established the sum can be a higher multiple of savings. Member has to establish a track record.

In the case of "free" insurance, it is true that the members pay for this but , in reality, it is paid from surpluses and does not affect either the dividend rate or the deposit rate, and certainly not the loan interest rate.

Credit Unions are not logical places to build up substantial savings. Historically they were cheaper lenders than banks and are becoming so again. There is a considerable amount of community support from CUs locally and they are locally run and hold AGMs locally. They are not motivated by profit but by service to members.

Notwithstanding this there are serious questions of governance and management which are discussed in another thread in AAM.

Slim

 

[ClubMan]

In the case of "free" insurance, it is true that the members pay for this but , in reality, it is paid from surpluses and does not affect either the dividend rate or the deposit rate, and certainly not the loan interest rate.

How so? Surely if there are higher surpluses available then the CU could pay higher dividends/interest on shares/deposits? To claim that there is some sort of free lunch here makes absolutely no sense?

 

[Slim]

How so? Surely if there are higher surpluses available then the CU could pay higher dividends/interest on shares/deposits? To claim that there is some sort of free lunch here makes absolutely no sense?

In the scheme of things, the cost of the insurance is absorbed as an expense to the CU. It does affect the surplus but only where the CU was just clearing a surplus large enough to pay a decent dividend would it materially affect the dividend. The surplus each year is distributed, for example, as follows:
Statutory Reserve
Bad Debt Reserve
Then Dividend

so the Board usually decides that a certain dividend would be appropriate, say 3%, then as long as there is enough to put to the reserves as well as pay out the dividend, the cost of the insurance has no material effect.

However, if finances are tight, the cost of insurance would have to be looked at as with all other overheads and expenses.

Slim

 

[ClubMan]

But the "free" insurance in question does cost something which is charged to the CU and ultimately the bill is met by the members however indirectly?

 

[RainyDay]

One downside of saving with the CU is that the interest rate is only declared retrospectively, so you don't have a guaranteed interest rate at all.

 

[Gettinthere]

The credit union have never refused me a loan. They're always more than willing to accommodate in times of financial difficulty. I save weekly with them by DD and deal with them over the phone; the staff are so friendly, so understanding and generally a pleasure to talk to. Got my car loan at 5.7% and was just approved for another small loan at the same low rate to finally clear the credit card (I know, I know!). You can borrow up to 2.5 times your savings, plus you continue to save, so there's a sense of security there for small-time earners. Perhaps some of you disagree with saving while borrowing, but the emergency fund is always there, which is a great comfort to some.

Put it this way, I'd rather pay loan interest at a reasonable rate and continue to save a small amount with a lending institution which provides a friendly, efficient community-based service, than be crucified by a bank. If I miss a payment the worst thing that'll happen is I'll get a friendly phone-call gently reminding me of my obligations.

Sure, it makes no sense to leave a large sum of money on deposit with them, but for someone on a low wage or for someone looking to finance a course/holiday/home improvements, they're pretty hard to beat. Low interest, no penalties for early repayment, security for your loved-ones in the event of your death/incapacity. The key word is CREDIT, they're an excellent option for borrowers.

 

[The_Hustler]

They allow any size withdrawls without notice. Granted it's not cash but when I needed a cheque for the deposit on my house I had no trouble. My bank only allows me to move 5000 online every day, probably less if I went in looking for cash.

I once had an issue when I was 18 where I was taking out a couple of grand and they started claiming that you had to be over 18 to withdraw that much, and that that meant 19. Luckily my father was there to give permission but I thought that was ridiculous.

I think when my account was opened there their savings rates were better than banks, it's only recently we've been seeing these high rate deposit accounts. I think the gross interest was a big attraction for some.

How much do people mean when they say a large sum? Many credit unions actually have quite a low limit on how much you can save. My local's used to be €13,000 but in recent years increased this to €20,000.

 

[kaplan]

The question might well be posed why anyone would ever want to save with a credit union when not one euro of savings is protected under a deposit guarantee scheme ?

Most average households are unsophisticated depositors typically holding savings in the form of deposits with one or two institutions. How many savers have the ability to judge the safety and soundness of their credit union ? How many credit unions make their accounts publically available ?

Transparency is a hall mark of good financial safety net provisions. But the Irish Regulator doesn’t provide a scintilla of information on credit unions – in effect denying public scrutiny.

So how can we tell if one is riskier than another ? We can’t and are not expected to. This is why deposit insurance is such a necessary consumer safeguard. It provides comfort to unsophisticated savers which most of us are.

With close onto €14bn in household savings, credit unions have the largest concentration of household savings of any deposit taker in this state. About €11bn of credit union savings are held by the top 100 with the top 50 accounting for about €6bn. Each one has well over 10,000 customers with some as high as 25,000.

Perhaps a clear health warning should be required of credit unions:

“Warning: Your savings are not protected under an approved authorised savings protection scheme. You have no entitlement to compensation in the event of credit union failure”

 

[Grus]

I second kaplan. Under the deposit protection scheme you are guaranteed 90% of your money back up to a limit of €20000 per bank. This does not apply to CUs. AFAIK the CUs have a saving protection scheme that may or may not cover you up to a limit of €12500.

From www.creditunion.ie
"Participation in the Savings Protection Scheme does not confer any legal right on a credit union to receive any financial assistance under the Scheme. Provided assistance is given under the Scheme the savings of individual credit union members may be protected up to a maximum of €12,700 or 10,000 Stg."

 

[The_Hustler]

Hmmm, my credit union used to only allow you to save up to that amount, I presume that was the reason. When they upped the limit they kept it quiet that the remaider was completely unprotected

 

[Slim]

How many credit unions make their accounts publically available ?

Mine certainly does and I can see each month that we have enough cash to repay savers and where the investments are. However, I accept your point on savings protection. Current discussions between the ILCU, the Department of Finance and the Regulator might sort this problem out.

Slim

 

[kaplan]

Slim

You appear to be a member of a quite unusual credit union publishing it seems monthly management accounts and detailing its investments schedule to its members. Are you sure of this ? Are they available online ?

The vast majority do not and few if any provide their accounts on-line.

Current discussions on savings protection have been ongoing for over two years. Previous discussions broke down and only restarted at the behest of the Minister. Last year the Department spoke of a solution in early 2007. But there is still no sign of a solution.

Seems the ILCU want to set up their existing scheme as separate company within its so called “group”. This is in keeping with its long stated aim of statutory recognition as an insystem regulator, supervisor and deposit insurer. More mature credit union movements, including the UK, gave up on this ideology years ago and are regulated & supervised by state authorities with savers protected by state backed statutory deposit insurance schemes.

Perhaps discussions have once again reached a dead end. Meanwhile people are still being denied statutory protection for their savings despite this being a legal requirement since 2001.

Kaplan

 

[Slim]

You appear to be a member of a quite unusual credit union publishing it seems monthly management accounts and detailing its investments schedule to its members. Are you sure of this ? Are they available online ?

Yeah, deffo. Put up on office notice board each month.

Current discussions on savings protection have been ongoing for over two years. Previous discussions broke down and only restarted at the behest of the Minister. Last year the Department spoke of a solution in early 2007. But there is still no sign of a solution.

Talks are still ongoing and could be said toi be in an end stage.

Seems the ILCU want to set up their existing scheme as separate company within its so called “group”.

What the ILCU want and what the ILCU gets may be different. I would suspect that is their starting position on this. Final position may be a lot different.

Slim