When we asked our readers recently whether they were thinking of switching banks, an astonishing 59.5% said they were. And even more jaw-dropping 90 per cent said they were considering moving to smaller banks like Suncorp or Bendigo.

There is another way: a credit union or a building society structured as a “mutual.”

This means that the financial institution is effectively owned by its customers, and advocates from the credit union movement say this translates into better service, lower fees and lower interest rates.

The Big Banks make a lot of noise around the fact that many ordinary Australians are not only their customers, but also bank shareholders who receive dividends as well as capital gains on their shares.

Mutuals are owned by their customers. Meaning profits should be ploughed back into better rates and services.

Advocates of this structure point to the following advantages

  • better service
  • lower fees and interest rates
  • a focus on ethics and corporate responsibility

Banks justify their profits and interest rate rises by saying they are responsible to shareholders, but for the customer owned banks – in theory at least – profits are less important. Their imperative is to look after the members who are also their customers.

Australia has around 70 credit unions, 12 mutual banks and five building societies and together they have about four million customers, around $100 billion in assets and more than 1000 branches around Australia.

Research house Roy Morgan operates a long running tracker of customer satisfaction, which has consistently shown that the customer owned financial institutions have happier customers than the banks.

“Credit Unions and Building Societies are one of the highest scoring categories in the Customer Satisfaction Awards, regularly satisfying in excess of 90 percent of their customers with their member and community based approach,” Roy Morgan said as it announced its 2016 winner.

The main award went to the customer owned Greater Bank from Newcastle.  Next in ranking were four other customer owned institutions: P&N Bank from WA, Teachers Mutual Bank, Victoria Teachers Mutual Bank and Beyond Bank.

But do they offer better deals?

Well yes and no. On any given day a major bank will have a special offer in the market which will beat that of a credit union, but the umbrella industry body the Customer Owned Banking Association claims that the sector consistently beats the banks with better rates on home loans, personal loans and credit cards.

This is borne out on the mortgage comparison websites. An enquiry for a $350,000 mortgage in NSW brought up 1191 financial products on Canstar, and four out of the top five were customer owned institutions.

Then there is the issue of community engagement. Teachers Mutual Bank, for example, spends over 4.5 percent of its pre-tax profits on community investment, more than 10 times the average for the financial services sector.

Community First Credit Union donates half its annual fee on its 8.99 percent credit card to the McGrath Foundation. If corporate and social responsibility is important, this might be worth checking out and comparing.

Then there are the benefits of membership if and when the institution “demutualises” and becomes a limited company or floats on the sharemarket.

AMP, for example, was Australia’s largest mutual society and all members got shares when it demutualised in 1998.  Not many remember it today, but AMP stands for Australian Mutual Provident Society.

The AMP shares spiked rapidly, offering former members a tidy profit, before they slumped again, leaving some to wonder if changing from customer membership had been such a good idea after all.

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