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By Rachel Jones
Know Your Money Editor

When you think of savings accounts, you think of banks and building societies. But when the going gets tough for the financial services sector, many Britons may feel that there is nowhere they can turn to when it comes to hiding their cash away. The UK is stepping towards credit unions, an idea already big in the USA and boasting 86 million members, the Guardian reports. Indeed, the British government says that it wants to allow the expansion of credit unions as an alternative to the high street products on the market, the newspaper continues. However, what exactly are credit unions and why should individuals place faith in them over the more known Nationwide, Lloyds TSB and other bank and building society brands? And why should people go through the hassle of changing current accounts during the economic climate of 2009?

What is a credit union?

According to the Association of British Credit Unions Limited (ABCUL), credit unions are financial cooperatives controlled and owned by their members. Low interest loans, current accounts, Child Trust Funds and individual savings accounts are all available through such organisations. Members have a common bond, such as living in the same area or working for the same company. These individuals all pool their money together from which loans can be made.

Savers are paid a return on their money and cash can be lent out to other members who pay interest on this loan. This interest is then ploughed back into the union as a profit and is either given out to developing businesses or returned to members, ABCUL continues. Indeed, the credit unions are regulated by the Financial Services Authority and all members have complete protection for the first £50,000 of their savings, under the Financial Services Compensation Scheme. Some credit unions attach charges to their schemes, for example, £1 a week or a month.

Rolling out across the UK

ABCUL announced this week that seven more credit unions have launched current accounts. Supported by the Department of Work and Pensions, the total number of credit unions offering such accounts is now 18. Newry, Llandudno, Tower Hamlets, Just, south Tyneside, Hartlepool and Lewisham are the latest to offer such services.

Mark Lyonette, chief executive of ABCUL, says: "The government has recognised that those people who do not have a current account are at a disadvantage in society. For example, without a current account, you cannot benefit from the convenience and cost savings of direct debits.

"The Credit Union Current Account (CUCA) is enabling more and more people to access the benefits of the banking system, often for the first time, helping them to manage their money more effectively and preventing them from getting into debt so easily."

Over 15,000 credit union members have a CUCA, which were introduced in March 2007, ABCUL states, although it adds it expects to see twice as many over the next 12 months. There is no overdraft facility, which could be good news for those Britons struggling with debt management and who therefore can avoid the charges normally placed on them by banks and building societies. In turn, a debit card is provided and holders can set up direct debits and standing orders.

So why not just stick with a high street account?

Apart from the benefit of not having the temptation of using an overdraft, such accounts are not held by City shareholders willing to gamble away the hard-earned cash of savvy savers, the Guardian notes. Those who are lower earners can also obtain credit at a more affordable rate than provided on the high street, boosted in part by the fact that the members are often in the same boat and understand one another's financial position.

"In the present climate, many people will probably find the idea of belonging to a credit union quite appealing," the newspaper asserts.

People are also turning to credit unions to find the cash needed to cover the costs of rental accommodation and for credit card consolidation, Wrexham county borough's credit union manager David Collins tells the town's Evening Leader. Those who have lost their jobs and finding it hard to find finance will also turn to such organisations, he states.

With the high street banks and building societies slashing interest rates, taking their highest performing savings accounts off the market and at risk from poor judgment by bankers and stockbrokers who do not know or understand savvy savers' personal situations, credit unions could be one answer for cash-strapped Britons looking for support in riding out the current economic storm.

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