Building societies and credit unions were, for a long time, the champions of self-help and mutuality among Irish people. You saved with the credit union in order to build up sufficient "shares" which you could then borrow against in order to buy cars, holidays or items for the house.
The building society was where you saved to buy or build a home, with profits paid back to members in the form of interest payments and reasonably priced loans for all. Back in those days, because credit unions could not lend for housing (and the banks would not) and building societies were not able to offer personal loans, the two institutions enjoyed considerable exclusivity in their respective markets.
Today, the mutuality of building societies is under pressure by the lure of the stock market and even those that do not turn themselves into banks, are imitating them by providing a myriad of bank services. Credit unions also offer more banking-type services and while they cannot lend mortgages, by next year they will be able to considerably increase the amount they can lend.
Which is why the latest account from the First National Building Society (soon to join the Irish Permanent as yet another bank plc called First Active) is so interesting: with the introduction of the First Active Savings and Loan Account, FNBS has decided to go into the credit union business.
Any credit union member (and there are more than two million in the 32 counties) will recognise this new account: you save a certain amount for a regular period at least five months after which you can apply to borrow twice the amount saved. This is not quite the way the average credit union does it (most let you borrow a standard multiple), but every subsequent loan you take out ups the borrowing ante to three, four or five times the accumulated saving.
Another two features that emulate credit unions is that the interest charged on this new FNBS account 11 per cent APR is calculated on the outstanding balance of the loan each month; borrowers will also enjoy free life cover so that in the event of your death, any outstanding loan is automatically repaid and the amount of savings will be doubled, to a maximum cover limit of £5,000.
Unlike the credit union, which restricts this insurance cover according to the age of the account holder there is no age discrimination.
You can borrow only up to £10,000 on this new account, but repayment terms vary from six months to five years. (A £10,000 loan would require initial savings of £1,000 a month for five consecutive months.) An added bonus for existing First National customers is that the interest rate will be fractionally discounted with every subsequent loan.
Finally, this new account also incorporates some flexible repayment options that First National already introduced to its mortgage and car loans you can step up payments in order to pay off the loan faster; you can take payment holidays and you can withdraw any funds that have been prepaid. First National's banking general manager, Mr Richard Hoare, told Family Money the company has moved into the savings and loan business at the request of customers who wanted a simple borrowing product which could be related to their level of savings.
Although First National does not require a customer to have a savings record in order to take out a loan, says Mr Hoare, this product is a good incentive for young people to save and for everyone else to be responsible about the way they borrow.
"It was very obvious from the popularity of credit unions and our own market surveys that many of our regular savers wanted a product which gave them a clear understanding about how much they could safely borrow, depending on the size of their savings," he says. In the run-up to becoming a public company, First National "wants to offer customers the widest range of products and accounts".
