CU is encourage me to borrow instead of spending savings

The general gist of Credit Unions is found in its name - credit. Its actually about borrowing because if you already had the savings habit - you might not be borrowing.

Offering a loan within savings essentially preserves your savings because you pay back the borrowings.

If your are not a borrower - but like letting some of your money help others thats also part of it.

If you are not in either of these situations - then leave the Credit Union as its nor for you.

End of.
 
Credit Unions don't force members to take out insurance, either on deposits or shares. The credit unions insure shares and loans for the members its an operational expense.
The 'operational expense' is an expense to the members. Without this expense, members would get a better return on their savings, or a lower cost on their borrowings.

The general gist of Credit Unions is found in its name - credit. Its actually about borrowing because if you already had the savings habit - you might not be borrowing.
It seems from this that it is in the interest of CU directors and staff to have their members to remain as financially ignorant, and continually borrowing. Any proposal to move members on from borrowing to saving, which would be in the interest of the individual member, would not be in the interest of the CU - have I got that right?

Offering a loan within savings essentially preserves your savings because you pay back the borrowings.
Not true. Your net position with the CU is the actually the same. If you have savings of €3k and a loan of €2k, your net position is still €1k, nothing has been preserved, other than an sleight of hand trick to increase the margin earned by the CU.

If your are not a borrower - but like letting some of your money help others thats also part of it.
Again, you're not helping others by lending them your money. Your net position with the CU is still the same, and that money isn't available to lend to others. The only way that you're 'helping others' is by paying a margin to the CU, so you could be helping the CU, its Directors and its staff all right.

If you are not in either of these situations - then leave the Credit Union as its nor for you.
Sorry, I'm not clear on this. Are you saving there is no place in the CU movement for those who choose to save and spend, rather than those who borrow and spend?
 
I agree fully with Rainyday that the CUs should be encouraging good practice in their members. Good practice does not mean borrowing money at 12% while putting money on deposit at 1%. That is bad practice, and the CUs should be stamping it out.

Paying off a loan is often the best way of saving and the CUs should educate their members on this.

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While it is financially logical that of course borrowing at 12% when you have savings at 1% makes no sense. But that is to fundamentally misunderstand the people who use a credit union.

The credit union, any that I've seen are there for it's members. People who otherwise would not get loans from mainstream lenders can go there for loans for cars, holidays, communions, weddings. There's no fuss and bother nor massive form filling and having to send everything to Dublin for a machine to make a decison on refusal. Inevitably the credit union will give you the loan. And sometimes it might be because the credit union committee member might know your uncle, and will therefore take a chance on you.

They have an immensely important role in helping people to both save and borrow, and have helped keep many people away from moneylenders. That can only be seen as a positive.

When I was first starting out it was the best way to borrow easily. I like they way they operate, but as many know I cannot stand the banks so I might be prejudiced.

Banks of course would like to see them wiped out. Both Mr. Bronte and I have operated a CU account each for a very long time, and we get derisory interest as all we do is save, but I know that if ever everything fell apart I'd have no problem getting a loan, but more importantly, as they are a force for good in society I would always support what they do. Anyone who has regularly visited the credit union, as I once did, can only observe and see how people need the credit union.

It is true that during the boom some credit unions lost the plot. Hopefully they are getting back on track to what their original core business was.
 
That's not true. Given that the biggest expense to a credit union in terms of its lending is provisions and bad debts, the insurance cost wouldn't have any affect on the interest charged. Actually it would cost the Credit Union more as it would have to write off loans were a member died.

As for a savings return, well there's many more things affecting the dividend return than the cost of the insurance. The insurance was always a cost paid as an expense, yet credit unions paid 2-3% historically. Explain why you think the insurance cost is now the cost that's causing a reduced dividend?

Every cost incurred by the CU reduces the dividend to members. You could make an argument about whether the cost of this insurance is material or not, and perhaps it's not, but it is ultimately a cost to members.

And it's not true to say that the CU would have to write off debts on death without the insurance. Without the insurance, the CU would have the option of pursuing the estate for repayment, if it chose to do so.

While it is financially logical that of course borrowing at 12% when you have savings at 1% makes no sense. But that is to fundamentally misunderstand the people who use a credit union.

The credit union, any that I've seen are there for it's members. People who otherwise would not get loans from mainstream lenders can go there for loans for cars, holidays, communions, weddings. There's no fuss and bother nor massive form filling and having to send everything to Dublin for a machine to make a decison on refusal. Inevitably the credit union will give you the loan. And sometimes it might be because the credit union committee member might know your uncle, and will therefore take a chance on you.

They have an immensely important role in helping people to both save and borrow, and have helped keep many people away from moneylenders. That can only be seen as a positive.

When I was first starting out it was the best way to borrow easily. I like they way they operate, but as many know I cannot stand the banks so I might be prejudiced.

Banks of course would like to see them wiped out. Both Mr. Bronte and I have operated a CU account each for a very long time, and we get derisory interest as all we do is save, but I know that if ever everything fell apart I'd have no problem getting a loan, but more importantly, as they are a force for good in society I would always support what they do. Anyone who has regularly visited the credit union, as I once did, can only observe and see how people need the credit union.

It is true that during the boom some credit unions lost the plot. Hopefully they are getting back on track to what their original core business was.

I'm well aware of the role and value of CUs and I'm quite a big fan of CUs as community financial institutions, owned by the their members. I'm certainly not a fanboy for the banks.

I'm challenging this particular operating practice of the CU, not the CU movement or ethos itself.

It seems to me that the CU is actively trying to keep their members financially dependent on the CU, instead of educating them to be financially independent. It is in the interests of the CU staff and Directors that members continue to borrow, even when there is no need for members to borrow. If the CU truly has the interests of members at heart, they would not be encouraging them to pay interest unnecessarily.

If members find it much more difficult to make payments to savings then payments to repay loans, then the CU should

1) Be absolutely open and transparent about the price members pay to borrow instead of saving, or
2) Offer alternative services, like a 'nagging' service about payments to savings, to support members to save better, if that is what it takes.

It seems to me that this approach of encouraging members to borrow instead of saving is designed to be in the interests of the CU staff and Directors moreso than the interests of members, who pay the price of the interest margin.
 
There is some sense to borrowing less than your savings as a 'secured loan' in the CU. Say, for example, you have €5k in savings in the CU. You want to upgrade/instal your domestic central heating or such. The estimate is €4,950. You can withdraw €4,950 from the CU and pay for the upgrade. This will save you about €150 pm in repayments @APR of 5.5% for a secured loan. Then, your car breaks down or you decide to change it so you need €5k quite quickly to get back on the road. You have spent your €4,950 on th heating, the banks are not lending and your CU apply the 4:1 rule, they will lend you €150! Alternatively, you kept your €4950 in shares, borrowed €5k and now you can probably get a loan easily enough for €5k, albeit at the higher interest rate for unsecured loans. Then you crash your newish car and are killed. Your family will not have to find €5k to pay off the loan and will have the savings doubled to €10k, all of which will be a mighty relief to the bereaved family.

Having said all that, the CU is not always a suitable service provider for sophisticated financial management. It is suitable for relatively small amounts of savings and loans. I am a longstanding member of the CU and Board but I still repay the loans I borrow very quickly so as to minimise the interest I pay.

By the way, any CU that charges 12% on loans and only pays 1% dividend is, in my opinion, gouging its members. Our own charges 7% and pays 1%. (5.5% for secured loans.)
 
There is some sense to borrowing less than your savings as a 'secured loan' in the CU. Say, for example, you have €5k in savings in the CU. You want to upgrade/instal your domestic central heating or such. The estimate is €4,950. You can withdraw €4,950 from the CU and pay for the upgrade. This will save you about €150 pm in repayments @APR of 5.5% for a secured loan. Then, your car breaks down or you decide to change it so you need €5k quite quickly to get back on the road. You have spent your €4,950 on th heating, the banks are not lending and your CU apply the 4:1 rule, they will lend you €150! Alternatively, you kept your €4950 in shares, borrowed €5k and now you can probably get a loan easily enough for €5k, albeit at the higher interest rate for unsecured loans.
Your logic depends on your CU having the archaic policy of lending in ratio of savings, instead of lending based on ability to repay. I heard a lady from my own CU talking a few years back about how the old 3:1 borrowings:savings rule "went out with the ark" and how lending was based on your ability to repay.

The more logical outcome of your scenario is that they pay €5k for the central heating from savings, and if the car breaks down, then they borrow €5k based on their ability to repay, so they only pay interest IF THEY REALLY NEED TO BORROW.

Basing lending on savings encourages the member to pay more in interest than they would otherwise need to pay. It's very hard to see how this is in the members' interest.


Then you crash your newish car and are killed. Your family will not have to find €5k to pay off the loan and will have the savings doubled to €10k, all of which will be a mighty relief to the bereaved family.
If you have comprehensive car insurance, that will cover the cost of the car. If you want life insurance, pay for it (using the money you saved on interest payments), or avail of one of the many [broken link removed] floating around.
 
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