Credit unions in the United Kingdom have a long history. Identical or similar institutions to the present-day credit union were known as mutual societies within the United Kingdom.

Institutions known as mutual societies grew out of the friendly society movement of the 18th century, with the first mutual insurer, Equitable Life, being founded in 1762. The emergence of mutual assurance was linked with the Industrial Revolution and the need to provide for impoverished workers beyond the outmoded Elizabethan Poor Laws, as people congregated in the cities and lived in conditions of squalor and poverty. The principle of mutuality goes back to this epoch, when the sophisticated financial institutions taken for granted today, did not exist.

The only method of improving the quality of ordinary people’s lives was through the development of co-operative and mutual societies, as formalised under the Friendly Societies Act 1819. Mutual institutions thus predated the welfare state and were formed to meet the needs of a burgeoning working class, consisting mainly of rural and immigrant workers. As a practical expression, this communitarian self-help movement allowed small regular individual contributions to be pooled for mutual collective benefit, obtaining the same economies of scope and scale necessary in providing collective insurance and banking products, to mitigate enduring social exclusion. Initially funding was required for housing, consumer durables and emergency insurance provision, at a time when commercial banks were still exclusively commercial lenders.

Building societies were formed as small temporary societies by worker co-operatives, pooling resources to build local houses and subsequently allocating them among members by drawing lots. Once all members were housed, these organisations were typically wound up, although some became permanent societies in an effort to promote wider home ownership, as exemplified by the Leeds Permanent Building Society. Surplus funds were then pooled, providing an opportunity for low-income families to earn interest on small deposits, with proceeds typically invested in residential mortgages and liquid government securities.

The traditional intermediation function of mutual societies was to promote thrift among the working classes and thereby provide access to low cost home loans. This ethos has become obscured in the recent battle for customers, and only the very real threat of extinction has occasioned any renewed vigour in proclaiming the original mutuality message. Mutual societies continue to perform vital social functions, often serving on the boards of local community groups, as well as regularly making sizeable local charitable donations. Indeed, the mutual legacy of social benefaction, although quite substantial, risks only being missed by the present generation once such institutions ultimately cease to exist. With the conversion of most of the larger remaining mutual societies into proprietary companies, the bulk of the UK savings assets will have shifted away from their traditional providers into the mainstream UK financial sector. This change is occurring even as the traditional barriers between banks, building societies and insurance companies are disappearing. The spate of conversions is leading to a polarisation into two camps: the converters and the remaining mutuals.

Credit unions in the United Kingdom are now regulated by the Financial Conduct Authority and the Prudential Regulation Authority. They are classified in two types: type 1 is the smaller credit union while type 2 is larger. From November 2006 many type 2 credit unions began offering their members debit card accounts so that they could withdraw cash from any Link ATM.

In October 2008 the Financial Services Compensation Scheme guaranteed the first £50,000 of each saver's deposits in credit unions, in line with the guarantee for UK banks and building societies.

Credit unions in the UK now offer a wide range of services to their members; from direct debits to payroll deductions, from being able to send standing orders from their accounts to paying members bills to providing cheaper insurance facilities. Life insurance is usually included with membership (subject to pre-existing medical conditions and other exclusions). Death benefits vary between unions, but commonly include lump sum payments, writing off of outstanding loans and doubling of savings.

Credit unions offer savers considerably more protection than commercial "savings clubs", as was demonstrated by the 2006 collapse of the Christmas hamper club Farepak.

In June 2008, the Treasury announced plans to encourage the growth of credit unions by broadening the common bond and removing outdated restrictions. The changes are intended to significantly reduce the influence of door step lenders and loan sharks.