# Why Save with Credit Union?



## JonG

I've been trying to figure this out from looking at past CU posts, but why would I save with a credit union rather than with a bank?

Thanks


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## Caveat

Historically, you were not obliged to provide details of CU loans to mortgage providers etc - don't know if this is still the case.

Also, CUs are I think popular in low income areas - regular savers (even if the amount saved is small) tend to be looked upon favourably should loans be requested.

...this was my understanding anyway but I'm open to correction(!)


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## ClubMan

www.creditunion.ie and your local _CU's _website will give you their marketing blurb on why they think you should save with them.


Caveat said:


> Historically, you were not obliged to provide details of CU loans to mortgage providers etc - don't know if this is still the case.


Some _CUs _now pass details onto the ICB. See [broken link removed].

Also - in the past most or all _CU _savings were not visible to _Revenue _and dividends/interest earned were subject to self assessment with few people dealt with preferring to evade tax. This has changed somewhat in recent years:

[broken link removed]


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## Welfarite

I think CU loans are more accessible for people with low/irregular income. They were not considered a savings mechanism ever, really, putting money in was to show you could be trusted to get a loan and pay it back!


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## truthseeker

Caveat said:


> Historically, you were not obliged to provide details of CU loans to mortgage providers etc - don't know if this is still the case.


 
This was definitely the case in the past - dont know if it still is? Id be interested to find out if anyone knows the answer.


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## ClubMan

Was it not the case at one stage that dividends and/or interest paid by the _CU _was better than that available from other financial institutions? Not the case now when you compare _CU _dividend/interest returns with high rate deposit rates on offer from the banks etc.

Don't they double the savings of a deceased member and pay it to the next of kin or something like that?


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## ClubMan

truthseeker said:


> This was definitely the case in the past - dont know if it still is? Id be interested to find out if anyone knows the answer.


See my first post above.


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## Welfarite

ClubMan said:


> Was it not the case at one state that dividends and/or interest paid by the _CU _was better than that available from other financial institutions? Not the case now when you compare _CU _dividend/interest returns with high rate deposit rates on offer from the banks etc.
> 
> Don't they double the savings of a deceased member and pay it to the next of kin or something like that?


 

Yeah, something on those lines...or write off the outstanding loan if you died?


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## Guest127

CM. Think there is an age restriction on when a member dies and their loan is cancelled and their savings doubled. think if kicks in around 65 and maybe the savings end isn't doubled anymore after that age.


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## ClubMan

I can't remember the details and I could be wrong. I'm sure that if there's some benefit in this context then it'll be listed on www.creditunion.ie though.


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## irishpancake

ClubMan said:


> Don't they double the savings of a deceased member and pay it to the next of kin or something like that?



Clubman, I think you have hit on the main reason why those older citizens keep a few quid in the CU account. 

I know that when my late Dad passed on, the CU did indeed double his shares, and passed these onto my Mum. 

However, there have recently been some problems with this aspect, whereby elderly CU customers have "nominated" people other than next-of-kin to receive the pay-out on their death. 

The Ombudsman decided to refer the CU system of Nomination to the Financial Regulator.

See Page 10 of report [broken link removed] (pdf file req Foxit or Adobe reader).



> However, in the light of these two complaints the Ombudsman took the view that the circumstances of these cases raised wider questions of public policy in that the Nomination system may be unfair to people, such as surviving spouses. In effect the system could be used to deprive a surviving spouse of his/her statutory rights under the provisions of the Succession Act 1965.
> In these circumstances the Ombudsman decided to refer the issue to the Registrar of Credit Unions (the Financial Regulator) so that full consideration could be given to the public policy issues raised arising from the circumstances disclosed by these complaints.


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## truthseeker

ClubMan said:


> Was it not the case at one stage that dividends and/or interest paid by the _CU _was better than that available from other financial institutions? Not the case now when you compare _CU _dividend/interest returns with high rate deposit rates on offer from the banks etc.
> 
> Don't they double the savings of a deceased member and pay it to the next of kin or something like that?


 
This did happen when my parents died - loan written off, shares doubled and paid out to myself and sibling. I think different CUs have different rules on it.


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## oldtimer

Lets go back to the original question '' why should one save in the Credit Union rather than the Bank.'' It depends - are you saving for everyday needs? If so the simple answer is money is available on demand over the counter at a better rate of interest from the Credit Union. If you are saving larger amounts not for everyday needs then it would be silly to save in the Credit Union - other financial institutions far more attractive.


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## ClubMan

oldtimer said:


> If so the simple answer is money is available on demand over the counter at a better rate of interest from the Credit Union.


I don't believe that this is necessarily or actually the case. Many _CUs _have been paying dividends of c. 3% in recent years. Many banks offer better than this even on demand deposits.


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## MB05

There is probably no reason to pick them over a bank now if the rate is the only criteria you are interested in.

A couple of reasons I can think of why people did or still do:

They are usually community based (near home) and open in the evenings.

Smaller queues.

It is easier to get a loan from them than a bank.

Mine was a work one so payroll deducted my savings from every pay packet.  No temptation!

They were better than most banks for interest (still are better than most ordinary current accounts).  Although mine screwed up big time this year - dodgy investments saw them write off 10 million and the proposed 4% interest turned into 2% after the financial reg. intervened. Needless to say I moved the majority of my money shortly after they announced it.

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.

In general I think most people who bank with a credit union are not rate tarts.  It's a convenience thing or they come from a backround of getting loans from them.  As times got better people stayed with them and saved instead of borrowed.  Banks in this country are new to giving decent interest rates and fighting for peoples custom.  Credit unions were accessible to all, very informal (ran by neighbours etc) and much more lenient on loans.  If I remember correctly the interest on savings was DIRT exempt at one point or at least a portion of it was.


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## ClubMan

MB05 said:


> They were better than most banks for interest (still are better than most ordinary current accounts).


Comparing a _CU _account to a current account is not a fair comparison. Most _CUs _don't offer current account facilities (e.g. _ATM _withdrawals, _Laser_/debit cards, chequebook, _DDs/SOs_, online access, call centre assistance etc.). A fairer comparison would be with a bank savings account and there are many of these that offer much better rates than most _CUs_. And there are even some current accounts now that offer a better rate of interest on limited cleared balances than the _CU_!


> 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.


Surely if you wanted to empty (but not close) your bank account you bank would issue a cheque so it would be the same as the _CU _on that score?


> If I remember correctly the interest on savings was DIRT exempt at one point or at least a portion of it was.


No - just that most people ignored the tax issues and evaded tax. Only in recent years has partial tax exemption on special term accounts (offered by the _CUs _and other financial institutions) with access restrictions been introduced.


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## iggy

ClubMan said:


> I don't believe that this is necessarily or actually the case. Many _CUs _have been paying dividends of c. 3% in recent years. Many banks offer better than this even on demand deposits.


I only got 2% this year in my CU...so I`m outta there next week.No real reason to save with CU now unless you`re planning to pop your clogs soon!


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## ClubMan

Just checked my own _CU's _annual report (I still have about €50 with them) and they also paid about 2.5% in dividends for the past couple of years. Part of the report also seems to push normal deposit accounts in favour of share accounts. Not sure why...


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## ontour

A good reason to save with the credit union is to enable you to borrow from the credit union. You would borrow from a credit union because:

- it may gives you the best rate. Personal lending rates in credit unions vary from 4.5% - over 12%, so it depends a lot on what credit union you are a member of and the characteristics of the loan that you are applying for.

- the credit union loan may be provided to you when personal circumstances are not ideal e.g. loss of employment. In these cases a loan request may not be entertained by other financial institutions. If anyone is looking for an appropriate comparison for this, it would be the sub-prime lenders.

- the flexibility regarding opening hours, location, speed of loan disbursement or varying the repayment amount without penalty would not be available from many of the other institutions.

This does not mean that credit unions are the right place to maximise your annual interest on savings, there are plenty of threads on FA, Rabo etc. for that but I hope that it does at least give a plausable reason for putting a tenner a month in the credit union.


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## Guest127

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.


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## ClubMan

cuchulainn said:


> 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_?


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## 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.


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## ClubMan

Tadhgin said:


> 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.


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## Miles

Tadhgin said:


> 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.


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## 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?


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## 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.


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## 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...


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## 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


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## ClubMan

Slim said:


> 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?


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## 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


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## 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?


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## 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.


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## 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.


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## The_Hustler

MB05 said:


> 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.


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## 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”*


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## 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."


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## 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


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## 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


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## 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


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## 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


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## annemarief8

If i have a loan of 13k with the CU and 3.5K in savings...can I just ask them to put the 3.5k off the loan and then continue paying weekly as normal therebu reducing loan and rebuilding savings?


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## Slim

They will advise you that your loan is insured - should anything happen to you, it will be cleared and your nominee may receive up to €7,000 plus €1,300 Death Benefit. They will not allow you reduce your savings balance to 0, but may allow you to withdraw a lump sum and you can pay that off your loan and reschedule the repayments, i.e. reduce them. Slim


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## Complainer

Slim said:


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


Is the notice board in a public area of the office?


annemarief8 said:


> If i have a loan of 13k with the CU and 3.5K in savings...can I just ask them to put the 3.5k off the loan and then continue paying weekly as normal therebu reducing loan and rebuilding savings?


Not that they may well discourage you from doing this. Don't ask them 'can I withdraw my savings to repay the loan. Ask them 'If I make a lump sum repayment, can you reschedule my loan'. When you withdraw your savings, leave it a week or so before making the lump sum repayment, and make sure the amounts aren't exactly the same.


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## Slim

> Is the notice board in a public area of the office?


Of course!



> Not that they may well discourage you from doing this. Don't ask them 'can I withdraw my savings to repay the loan. Ask them 'If I make a lump sum repayment, can you reschedule my loan'. When you withdraw your savings, leave it a week or so before making the lump sum repayment, and make sure the amounts aren't exactly the same.


 
Yes, they will discourage you, but I would not get too devious about it. It's your funds after all. Be upfront with them.


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## Brendan Burgess

I have moved all the posts about how to quote another post  

Brendan


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