Monday 18th Mar, 2019
What is it and how can you get a higher rate?
The Dividend Difference
We are often asked questions such as “What interest will I get on my savings?”, or “Why was my interest different this year than it was last year?” or “How much interest will I receive next year?”
The simplest, starkest answer is that you don’t get any interest on your savings, you never have and we can’t tell you what return you may get on your money this year.
However that answer may be a little bit too stark, so read on to find what it's all about and how you can influence your own dividend as we dig into the dividend difference…
So simple… it’s genius
One of the great things about Credit Unions is that they aren’t like banks. A Credit Union is not-for-profit, but for member service. They are financial co-operatives owned by their members who all have something in common and want to support each other in their own alternative to the mainstream banks and building societies. It’s about people helping people.
This means that unlike banks, who exist to provide profits to external investors, there are no outside shareholders in New York or Hong Kong taking a cut, there are no hedge funds or pension fund investors involved and the Credit Union can get on with supporting its members who share the risk and reward that comes with being a member. That’s the reason, when the financial crash hit and when the banks dropped savings returns close to zero and stopped lending, the Credit Union didn’t. It supported its members, it loaned more and paid higher returns to savers.
Why should we keep our money in the Credit Union?
Those weren’t enough reasons already? Ok… People save in Credit Unions for lots of reasons. Maybe they like the ethical approach to finances, maybe they enjoy the ease of having money taken from their wages, automatically saving up for them in the background without them having ever seen it. We’ve even heard that some people like a savings account in which they can build money where their spouse doesn’t know about it… though I’m sure that doesn’t apply to any of you!
Some really like the idea of their money being used to support their friends and colleagues when they need it, and having our colleagues’ money available to support us when we need it and doing this all for ourselves, outside of the banking system and inside the BAE Systems family. It’s what not-for-profit, mutual, co-operative financial services are all about. It’s what Credit Unions are all about.
So what return DO we get on our money?
Apart from the fuzzy warm feeling of being involved in something that’s good for others and not just for ourselves, or supporting an organisation that has supported BAE Systems people for almost 40 years, if the Credit Union does well then savers can be financially rewarded by receiving a dividend on their savings.
It might be higher than you'd get in interest in the bank, and it might not be. This isn’t interest, isn’t guaranteed and we are not allowed to publish predictions in advance. It’s is a share of any surplus income that has been made by the Credit Union in the previous financial year.
Historically the dividend returns at First Rate have been much higher than the average return on a no-notice savings account. Even this year, when the dividend was awarded at 1%, it was still higher than the average return on the high street.*
(*Average market return on no-notice savings accounts. Source: Moneyfacts Treasury Report)
The volunteer Board chairman (A credit union member and retired BAE systems employee) Martin Newton said: “The Credit Union Board of Directors is committed to providing members with competitive returns on their money and dividends will always be at the highest level that can be reasonably supported after regulatory, operational and business development needs have been met.”
The Credit Union Model
The model is straightforward. Members place their savings into their Credit Union. The Credit Union loans those savings out to other members who pay interest on those loans. From the interest received the Credit Union puts money into regulatory reserves, pays its bills, invests in member service improvements and then whatever is left over goes to members as a dividend.
This is different from the interest that you might see advertised in banks or on money comparison sites. This is about receiving a share in the success of your own Credit Union and you, as an owner-member, can have an impact on that.
So how can I get a higher dividend?
The Credit Union’s only significant income is loan interest and that is where your dividend comes from. So members who want to see their Credit Union succeed, and to share in that success in the form of higher dividend rates, have the option of doing something about it.
Credit Union members who promote the Credit Union to their colleagues when they are looking for finance, who recommend it to other BAE Systems people on their work site and who use it to borrow money as well as to save will be genuinely exercising their ownership of the Credit Union and playing a direct part in its ongoing success. They can then take a share of that success as a dividend on their savings. Taking an active part in making your credit union successful is to take part in making your investment in the credit union more successful.
What you do can be as simple as telling your colleagues about your credit union or recommending it when people are looking to borrow money. It can be a bit more, perhaps leaving a good review on our social media, liking and sharing our pages and posts on Facebook, Linked In and Twitter. Or perhaps displaying a poster in your workplace or actively distributing flyers to your workmates. You could even arrange for us to come along and talk to your team meetings, market stall events, conferences or workplace inductions of new staff. The greater your level of input, the greater your chance of sharing in your credit union's success.
The Bottom Line
Whilst the Credit Union has nobody other than its members to pay a dividend to, nobody can tell you whether the interest you are offered in a bank account this year is more or less than you will get as a dividend on your Credit Union savings. It isn’t possible to know, and that’s the risk you take in being a member.
The difference is that you can’t influence the bank interest rates, you can influence your Credit Union dividend by taking an active role in promoting your Credit Union’s success.
First Rate Credit Union is open to all employees of BAE Systems in the UK. Get them to join up now, and let’s all succeed together.