If you are a PCC, diocese or community group you could consider investing some of your reserves in your local credit union.
The most straightforward option to invest a sum of money in a credit union is by opening a corporate savings account, which pays an annual dividend at the end of each financial year. Your investment will enable the credit union to make more loans to people in the community. There is an additional reputational benefit to the credit union: support from an organisation with recognised social status, such as a local church, endorses the credit union and helps it to attract new members. The maximum savings a member can have is £15,000 or 1.5% of total shareholdings, whichever is greater.
There are two other ways of investing in credit unions, which are a particularly valuable source of long-term capital funding.
- Deferred shares are a way for credit unions to raise capital for their reserves, which they are required to hold by the regulators. The minimum requirements are greater for larger credit unions, which can act as significant barrier to their growth.
- Subordinated loans are long-term loans to a credit union for a minimum of 5 years (and typically 10 years), and are another way of providing capital to a credit union since the lender cannot demand the return of the capital before the stated maturity date unless the loan is in default.
Both deferred shares and subordinated loans pay an interest rate agreed in advance with the lender – typically base rate plus 1-4%. Holders of these shares are ranked behind all other creditors if a credit union becomes insolvent.