By Charlotte Beugge

The year may only be a few weeks' old, but already two credit unions have gone under.

But customers of one have already been compensated and those of the other have been told they will be paid out within a week by the Financial Services Compensation Scheme (FSCS).

The FSCS is the final safety net for savers with UK financial institutions. Savers are covered for up to £85,000 and the scheme is funded by a levy on the industry.

The first credit union to fail in 2012 was the Handsworth Breakthrough Credit Union which was declared in default on 5 January, with the FSCS paying out £203,000 in compensation to most members within four days.

And the Hull East of the River Credit Union was declared in default on Monday. The FSCS says that it aims to compensate the 560 members, who have a total of £94,170 deposited, within a few days.

Compensation will be paid by cash over Post Office counters for amounts under £1,000 and by cheque for amounts above this. Last year, six credit unions were declared in default by the FSCS and members compensated.

Credit unions are community banks, aimed at providing low-cost finance for those who save with them. Recent changes to the Credit Unions Act mean they can extend their customer base and offer new products.