Credit unions are financial co-operatives owned and controlled by their members who combine savings to offer low-cost and flexible financial products to their members.

Each union has a 'common bond' which determines who can join. A ‘common bond’ is simply having something in common with the existing members such as living or working in the same area, work colleagues or people who belong to the same association, such as a church or trade union.

If you are not able to save every week or month or have a poor credit record, a credit union may be more sympathetic to your needs than a larger financial institution would be.

Credit unions welcome irregular savers, and all savers usually get the same percentage dividend on their savings aiming to pay a dividend on savings once a year to all their members. This can be as much as 8% of the amount that people have saved, but is typically 2% or 3% depending on profits.

As mutual societies, credit unions are non-profit organisations and must each year set aside enough money to ensure they remain financially stable. All profits are used to make interest rates as cheap as possible for borrowers and rates of return attractive for savers.

With a credit union you can save as much or as little as you like, weekly, monthly or as often as you wish. You can pay in at convenient local shops or collection points, or direct from your wages.

You do have to prove you can save before you can take out a loan with a credit union. Once you have satisfied this requirement, the total amount you can borrow from your credit union is based on what you will be able to repay. They can also tailor their services to suit your individual circumstances.

The interest a credit union can charge on a loan is limited to 1% a month. So a loan of £100 costs no more than £1 each month in interest.

Typical interest rates for loan repayments are just 6% and members can also automatically have free life insurance.

The main act of Parliament governing credit unions was the Credit Unions Act 1979 until 2002 when the FSA (Financial Services Authority) took over as a regulating body. The FSA sets out the objectives of a credit union stating that credit unions must have their accounts audited annually by a qualified auditor and be insured against fraud or theft.

Credit unions cannot lend all their members’ savings or invest the remaining money in risky ventures. Instead they must put it into bank deposit accounts and the most reliable investments, such as government bonds. This enables them to get the money back if they need to.

A few points to keep in mind

You cannot simply join whichever credit union you think is best. You have to meet the common bond requirements yourself, or be a close family relation to someone who does and is already a member.

You cannot join a credit union just to get cheaper loans. You usually have to save with them first. The rules on this vary between credit unions.

You cannot save or borrow in the name of a business you may be running. Only members can borrow from a credit union and borrowing must be in your name even if you want to use the money for a business you run.

Credit unions typically have few branch offices and few, if any, ATMs.

Some credit unions don't return cancelled checks to you.

Your local credit union may not offer you as many services as you can get from the neighborhood bank. Check to see what's offered. You may end up deciding to keep accounts at each, for different purposes.

The UK credit union movement is still relatively small and is restricted by law from gaining size or offering services which could compete with profit-maximising banks.

Check with your local council or citizen’s advice bureau for a list of credit unions in your area. If you or your partner is working, the trade’s union representative or the people handling the wages should be able to tell you of any credit union’s covering the industry.