Savers get better returns with credit unions

From Cash ISAs to easy access savings accounts, savers can get a better rate on their cash with credit unions.

Savers are getting a terrible deal from the high street banks and building societies at the moment and it's almost impossible to get a decent interest rate.%VIRTUAL-SkimlinksPromo%
The Government-led Funding for Lending scheme means banks have less demand to offer competitive interest rates. As a result most savings accounts currently offer around the 2% mark.

One alternative for savers looking for a decent return is to join a credit union. They operate around the country and offer surprisingly competitive interest rates.

Cash ISA rates

All credit unions offer different products but most of the major names will have a standard current account, savings account and Cash ISA along with personal loans.

The rates on savings accounts are usually around the same as those from the high-street banks. But, because rates are so low right now, credit unions are in some cases offering far better rates. For example, The London Mutual Credit Union, with 16,000 members, has a 3% cash ISA.

The North London Credit Union offers a Cash ISA at 4% on balances of more than £2,000, while the Capital Credit Union, for people living in Edinburgh, the Lothians and the Borders, also has a 3% Cash ISA.

This is higher than any Cash ISA on the high street that doesn't involve locking your cash up for years. The current market-leading account comes from the Coventry Building Society at 2.80% for a 60-day notice account. After this comes the Cheshire Building Society ISA at 2.50%.

However, the catch with credit unions is not everyone can join. This is because they are only open to people who share a common interest, such as living in the same area or working for the same company.

New legislation which came in last year means it's now easier to join one, but there are still some restrictions in place. For example, those which ask for members to be from a certain geographical area are only allowed to have two million potential members. That said, on the whole it's now a lot easier to join.

Credit unions do not receive money through Funding for Lending, which means they haven't been affected by falling rates in the same way as members of the scheme. Therefore, given the dire state of the market right now it's worth seeking out your local credit union as there's a good chance it'll offer you more interest.

Savings accounts

Most credit unions offer regular savings accounts, such as those which encourage customers to save up for an event such as Christmas. But their easy access accounts are worth a look too.

The Transport Credit Union for example, open to workers in public transport, the road haulage industry or the ambulance service in Britain, has a 2.5% easy access account.

As most high street accounts pay an average of 2% for easy-access accounts, this is a deal worth looking into. Another good example is the Glasgow Credit Union which paid a rate of 3% on its easy-access account in the year ending September 2012.

Credit unions

Historically credit unions weren't allowed to pay out a rate of interest and would instead pay dividends at the end of the tax year. These were worked out based on the company's profits and therefore could vary.

This changed last year and means credit unions are likely to bring out some exciting deals in the upcoming ISA season. However, only unions which have reserves of at least £50,000 or 5% of the total assets are allowed to do this.

Along with savings products, there are also loans on offer. The London Mutual Credit Union for example offers a three-month loan at a rate of 26.7% giving borrowers an excellent alternative to pricey payday loans which can charge up to 68,300%.

To find your local credit union, visit

Five biggest taxpayer stings
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Savers get better returns with credit unions

Most recently HM Revenue & Customs let Vodafone off the hook - for quite a sum. Vodafone paid out just £1.25 billion despite an original tax bill being closer to £8 billion (HMRC has always refused to reveal how much it thought the Vodafone final bill was). The episode was made even more shaming and painful because Vodafone was given several years to come good with the cash owed - even though it was sitting on a substantial cash pile at the time.

The Exchequer is estimated to have lost around £10 million to Goldman Sachs recently through an 'error' made by HMRC. The episode relates to an employee benefit trust run by Goldman allowing employees to take non-repayable loans that had no National Insurance contributions tied to them. HMRC did claw back the full amount from more than 20 businesses - but not Goldman. HMRC remains cagey about the details of the deal. Little HMRC accountability or transparency.

Huge problems with QinetiQ, the former Defence Evaluation and Research Agency, or DERA. A lack of clarity on contractual arrangements at the outset didn't help, allowing private equity company Carlyle to hammer the price down (why would you start negotiations when you didn't know the company's true value?). The Ministry of Defence behaved, it was said, like "an innocent at a table of card-sharps". Estimated cost to the taxpayer - £90 million. Huge sums were later made by QinetiQ management when the company listed.

The TaxPayers' Alliances estimates £2.7bn worth of taxpayer cash was wasted with a super-expensive 'National Programme for IT in the NHS'. The Department of Health, in the end, had very little to show for it as a consequence. Another example of poor management and a seemingly ingrained inability to provide taxpayers' with value for money.

"BT is paid £9 million to implement systems at each NHS site, even though the same systems have been purchased for under £2 million by NHS organisations outside the Programme", the Commons Public Accounts Committee noted.

Contentious. The Office for National Statistics estimated this has declined 3.4% since 1997, "with inputs increasing by 38%." The Centre for Economics and Business Research estimate that this inefficiency costs the taxpayer £58.4 billion a year.

Given the above record, are there any deals that the taxpayer has actually won out on? Not many, but the one successful project was the roll out of new Jobcentre Plus offices. It came in £314 million under budget, claims the Taxpayers' Alliance. A small cheer.

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