How does a credit union work?

As a member of Retail CU*, you are part of a worldwide credit union movement. Globally there are more than 82,000 credit unions serving nearly 403 million members from 98 countries, but how does a credit union work?

A credit union is a financial co-operative which provides savings, loans and a range of services to its members.

When someone joins a credit union, they become a ‘memberand a ‘shareholder’. All Retail CU members* are our customers and also equal shareholders.

Savings and loans

Credit unions ask members to save regularly. Members’ savings create a ‘pool of money’, which is in turn offered to other members as affordable loans. Hand in hand, savings and loans are the lifeblood of a credit union. Without savings, there are no funds to lend, and without loans, there’s no income or dividend for members.

Interest earned on loans is the credit union’s only income and covers its administration costs. When a credit union is successful, it shares its success with members. Any surplus made is put into reserves for future investment or paid back to members as an annual dividend. The annual dividend is a share of profits, distributed to credit union members, rather than a fixed rate of interest on savings.

The credit union ethos ‘members helping members’ is reliant on savers and borrowers. Without both, there would be no credit union.

Board of Directors

The Board of Directors oversee the work of a credit union, ensuring compliance with legal and financial requirements. They are also credit union members, who volunteer their skills and expertise, and are elected at the AGM.

As all adult members are also shareholders, they are invited to the Annual General Meeting to have a say in credit union matters. At the AGM members vote to agree the annual dividend percentage rate recommended by the Board.

Common Bond

A requirement of the credit union regulator is that credit union members have something in common with one another. This is known as the credit union’s ‘common bond’ and determines who can join.  It may be a geographical area, an employer, or a sector.  You can see Retail CU’s common bond here.


Credit unions are regulated by the Prudential Regulation Authority and the Financial Conduct Authority. Part of the Bank of England, the PRA sets standards and supervises financial institutions. The FCA is a financial regulatory body, operating independently of the UK government. Regulators stipulate strict financial ratios for credit unions to help ensure stability.

Safe and secure

Members money is protected by the Financial Services Compensation Scheme. The FSCS protects customers if a bank, building society or credit union fails, by paying compensation.

So now you know a little more about how credit unions work!
Owned by and run for the benefit of members – our members really are at the heart of everything we do!

*Retail CU is part of Voyager Alliance Credit Union, and both are trading names of Penny Post Credit Union Ltd. Find out more about the Penny Post Group here.