In the aftermath of the Farepak collapse, Lindsay Jennings looks at the valuable role credit unions play for those who want to save and borrow small amounts of money securely.

AUDREY Simpson had come to rely on the Farepak savings scheme to ensure she could enjoy Christmas. This year, she had put by a small amount regularly and seen it grow to £400. So when the scheme went into administration in October, Audrey, of Shildon, County Durham, and the 150,000 other people across the country who had signed up, were left devastated.

"It's our money and we felt like we had been robbed," Mrs Simpson told The Northern Echo at the time.

"It was a massive shock, we'd had no warning. It was completely out of the blue."

Since then, a relief fund has been set up to help some victims. But the collapse has highlighted the need for a secure way for people to save and borrow small amounts of money. Not everyone wants to borrow £10,000, and even if they did, some people are left out of the modern banking world through circumstances. Often, people on lower incomes can end up the victims of loan sharks, borrowing a small amount of money and paying extortionate amounts in interest as high as 100 per cent.

But a credit union, which is cooperatively owned and run by its members, can be an ideal way to save as little or as much as members like, up to a certain amount. Loans can be taken out for as little as £10 with larger amounts available depending upon how much has been saved.

Celia Thompson, a retired registrar and one of 12 directors of the Durham City and District Credit Union, says: "If you're a single mother living on benefits then the bank won't want to know if you only want to borrow between £50 and £200. They want to lend you £10,000.

'The other thing with banks is that they're fine if you're in the system and employed, but if you're on benefits or don't work, people tend to end up with companies like Farepak or loan sharks. The alternative is to join a credit union. They are regulated by the Financial Services Authority which means they're insured and people won't lose their money, unlike Farepak."

The unions work by members making regular savings which form a pool of money which is then loaned out to members. When members have been saving for a certain amount of time (usually about eight to 12 weeks) they can apply for a loan from the pool.

Credit unions began in the agricultural communities in France and there are now more than 560 across the country. There are 16 listed with the Association of British Credit Unions, which represents the interests of the majority of credit unions, in the North-East alone.

To set one up there needs to be a common bond which determines who can join it. For Durham City and District Credit Union, which was launched in 2003 and has 170 members, people have to live or work within the boundaries of the city of Durham. But the common bond can be a place of work, church or community groups. Other North-East unions include Cockerton Churches Credit Union, in Darlington, South Darlington Credit Union, South Central Middlesbrough Credit Union and Great North 2000 (Transport) Credit Union at Sunderland.

But the unions are only possible because of the efforts of their volunteers.

Peter Troy, a publicist for the Durham City Union, says: "They're all volunteers and people who come from a variety of backgrounds but the work they do can make a real difference to people's lives."

Elisa Tindale, 18, heard about the Durham City Union from one of her mum's friends. She works as a waitress at The Royal County in Old Elvet, Durham, and rents her home in nearby Brandon. She saves around £20 per month by standing order and has the option of saving extra by taking money down to one of the credit union's collection points at Bearpark, Ushaw Moor, Sherburn Road Estate, Gilesgate and Claypath.

"I ride a moped to get around so I know that if I were to break down I'm able to get some savings out or take a loan to get it fixed," she says. "It's easy to save this way and I can get money out quickly when I need it."

Although Christmas is an ideal time of the year to save for, people borrow money from credit unions for all different reasons - from summer holidays to season tickets.

Loan rates vary but Durham charges 12.68 annual per centage rate (apr) on their loans and most have flexible repayment options. Members can choose to pay by standing order or pay cash at one of the nominated collection points.

"All we do is ask people to demonstrate their commitment by saving for a number of weeks first," says Celia. "Once they've done that, we lend them twice their savings plus a little bit. The second loan will be bigger and the third bigger still. After that it can be a considerable amount of money."

For Elisa, there is the comfort of knowing if anything goes wrong, she can get access to her money quickly and borrow more if the need arises. She realises many young people her age are getting into debt around this time of year, borrowing thousands on credit cards or store cards and taking out huge loans. But the credit union is a way for her to avoid the debt trap.

"I know people who've been in debt and I know it's something I don't want to get myself into," she says. "I want to make sure I never live beyond my means and this way, I know I've got a bit of money to help me along the way."

* For more information on joining the Durham City and District Credit Union, or volunteering with the organisation, contact 0191-375-7677 or write for an application form for membership to 136, Gilesgate, Durham, DH1 2XG. Members have to be over 18. For a list of other credit unions log onto the Association of British Credit Unions' website at www.abcul.org or contact 0161-832-3694 to find your nearest union.