Credit unions also offered interest on current accounts with no minimum balance and generally charged no fees. The interest rate charged by credit unions in the UK each year is thus 12.68 per cent or less. This compares with interest rates of between 20 and 30 per cent charged by banks and finance houses, and with say 15 per cent charged by banks for authorised overdrafts. Savings deposited in UK with banks and building societies, earn interest of about 2 to 6 per cent. Credit unions are not allowed to pay out more than 8 per cent and tend to pay out between 4 and 6 per cent.
Credit unions seem to be challenging commercial banks in the USA with the services they offer.
Credit unions in the UK would like to be allowed to compete with banks by offering banking services such as overdrafts and credit card as well as cheque-book facilities. Regulation brings both advantages and disadvantages and the next section looks at government restrictions. In the UK, credit unions are regulated by the 'Registrar of Friendly Societies' and have to submit quarterly financial returns to the Registrar. A minimum of 21 members is required to set up a credit union and membership is limited to 5,000 people. Credit unions in the UK are also required to reach a statutory minimum reserve of 10 per cent of aggregate assets, apparently to protect members.