If you've ever wondered what the difference is between a bank and a credit union — or whether a credit union might suit your needs — you're not alone. Credit unions have been growing steadily in the UK, with over two million members nationwide. Here's a plain-English comparison.
What is a credit union?
A credit union is a financial co-operative owned and run by its members. Unlike a bank — which is owned by shareholders and exists to maximise profits — a credit union exists to serve its members. When you join, you become a member and part-owner with a say in how it's run. UK credit unions are regulated by both the FCA and PRA, with deposits protected by the FSCS up to £85,000 — the same protection as a bank. You can find credit unions near you through the Find Your Credit Union directory.
Key differences
| Feature | Credit Union | Bank |
|---|---|---|
| Ownership | Owned by members | Owned by shareholders |
| Profit motive | Not-for-profit | For-profit |
| FSCS protection | £85,000 per person | £85,000 per person |
| Loan interest cap | Max 3% per month (42.6% APR) | No legal cap |
| Eligibility | Common bond required | Open to everyone |
| Digital services | Varies — often limited | Full mobile/online banking |
The common bond: who can join?
Unlike a bank, credit unions require you to share a common bond with other members. This could be living in a specific area (London Mutual Credit Union serves several London boroughs), working for a particular employer (many NHS trusts and police forces have their own), or belonging to a trade union. You typically pay a small membership fee (£1-£5) and may need to save a minimum each month (often as little as £1).
Advantages of credit unions
- Fairer lending: credit unions are legally capped at 42.6% APR — significantly lower than payday lenders.
- Ethical focus: profits are returned to members through better rates, not paid to shareholders.
- Community focus: many actively work to improve financial inclusion in their local area.
- Free advice: many partner with debt charities or offer free budgeting support.
Disadvantages
- Limited services: most don't offer current accounts, credit cards, or mortgages.
- Limited digital access: smaller credit unions may lack mobile apps.
- Membership restrictions: you can only join if you meet the common bond requirement.
Which is right for you?
If you need a full-service current account, a credit card, or a mortgage, a bank is almost certainly the better choice. But if you're looking for an ethical place to save or need a small, affordable loan — and you meet the common bond — a credit union could be worth considering. For people with poor credit history, credit unions can be particularly valuable: their lending decisions are often more personal, and the capped 42.6% APR maximum protects you from the triple-digit rates of some payday lenders. The Association of British Credit Unions (ABCUL) has more information about credit unions across the UK. See our guides on alternatives to payday loans and understanding representative APR.
This guide is general information, not financial advice. Products and eligibility vary between credit unions. Check directly with a credit union before joining. For free money guidance, visit moneyhelper.org.uk.