How Co-operatives Can Be A Viable Alternative To Commercial Banks

DollarsAndSense.sg looks into how Co-operatives or Credit Unions can potentially help many people in Singapore.

According to Wikipedia, “a credit union is a member-owned financial cooperative, democratically controlled by its members, and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members.”

In Singapore, these entities are never referred to as “Credit Unions.” Rather, they fall under what is known to us, if at all, as Co-operatives (CO-OPs).

What Are CO-OPs?

There are many different types of CO-OPs in Singapore. The one that would be most familiar to us is NTUC Co-operative Limited. The Co-operative runs various types of social enterprise businesses such as NTUC Foodfare, NTUC Price and NTUC First Campus. The differentiating aspects about CO-OPs are that they have an underlying social mission to also benefit the society, which they operate in.

If you would like to find out more about CO-OPs, you can visit the website of the Singapore National Co-operative Federation (SNCF).

Benefits Of CO-OPs in Singapore

Firstly, we want to point out that not all CO-OPs in Singapore offer the deposit-and-loan functions. Also, you need to know that CO-OPs tend to be exclusive, allowing only individuals to become members if they are part of a certain demographic that the CO-OP is created to serve. For example, the Singapore Police Co-operative society only allows membership to employees from relevant organizations such as the Ministry Of Home Affairs (MHA) and Corrupt Practices Investigation Bureau (CPIB).

We think CO-OPs that are able to provide banking-type functions are an interesting alternative people should understand. The reason is that they provide extremely competitive interest rates for their members, both for deposits put in and loans taken out.

For example, the Singapore Teachers’ Co-operative Society Ltd, which is a CO-OP set up for teachers or other eligible school employees, gives an effective interest rate of up to 3.08% per annum on its “Bonus Savings.” Its general saving and term deposits provide interest rates between 0.25% – 0.75%.

Members can also take short and medium terms loans from the CO-OP. Interest rate for these loans range from between 3.5% to 5% per annum, depending on the loan quantam and duration. These interest rates are extremely competitive when compared to personal loans offered by commercial banks or moneylenders.

CO-OPs Vs Commercial Banks

When deciding what to do with your savings, you should never just look at the interest rate offered to decide what is the best deal out there.

Rather, you should approach it from the persepctive of asking yourself what is your underlying goal for the money in your account first, before deciding what product out there best fits your needs.

For example, for a teacher to get the “Bonus Savings” of 3.08% per annum, the person will need to participate in a “save-as-you-earn” account and to commit a total of 24 monthly contributions. The condition clearly states that premature withdrawl will mean no interest or bonus being paid. Hence, if the person’s objective is to save up for an emergeny fund, this may not be the best instrument to use.

However, if the person is looking to build up a retirement nest without wanting to take any forms of risk, the “Bonus Savings” offered by the CO-OP may be a suitable product to consider.

In our opinion, CO-OPs are not meant to be a substitute for your savings account that you have with the commercial banks. Rather, it is meant to give individuals who belong to the respective CO-OP additional options to tap upon instead of solely relying on banks to better plan their financial requirements. Since CO-OPs are not profit maximizing entities, it is possible for them to offer better deals to their members compared to commercial banks.

If you currently belong to a CO-OP, why not spend some time today understanding the products and services available to you. You never know when something might just be relevant for you or offer you a better deal.

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