Bank or mutual bank: What's the difference?

20 June 2016
With the number of mutual banks in Australia now standing at 16, here are some reasons why you should consider whether a mutual bank might suit your needs…

What’s the difference between a bank and a mutual bank?

The term “mutual” reflects the fact that members have ownership of the credit unions and building societies they belong to, and “bank” refers to the banking services they provide. So a mutual bank, also known as a customer-owned bank, is a credit union or building society that has gone through the process needed to use the word “bank” in its trading name. This process starts with a democratic vote by members and ends with an official application to the banking regulator APRA to prove the institution meets the capital requirements of a bank.

A retail bank, on the other hand, such as one of the Big 4 or their many subsidiaries is generally listed on the stock exchange and owned by shareholders, who are not necessarily customers of the bank.

The difference between the two bank types is important to many Australians, some of who prefer directing their business towards a more personal and often community-based financial institution. At present, the Customer Owned Banking Association (COBA) advises that more than 4 million Australians utilise the customer-owned banking sector.

Mutual bank customers tend to be happy

The Canstar Blue Banking Satisfaction Survey found high levels of customer satisfaction across the challenger banks  surveyed. For example, Teachers Mutual Bank received a 95% customer satisfaction, compared to a banking industry overall average of 76%.

Mutual banks tend to be smaller in size and, being customer-owned, have a customer centric focus. This enables them to offer a personalised level of customer service that many of their members value. This makes sense because the goals of the customers, as owners, are the goals of the institution.

Your custom keeps the market diversified

The benefits of diversification in any market include increased competition and increased choice for consumers. Mutual banking overall – across banks, credit unions and building societies – has a collective size of $98.7 billion in assets, and it has the fifth largest pool of savings deposits in Australia. As a customer of a mutual bank, you are helping to keep diversification in the banking sector a real and viable thing.

Interestingly and despite a large number of financial institutions competing for your custom, the Canstar Blue banking survey mentioned above also found that nearly 3 in 5 Aussies (58%) are more likely to take out financial products with their current banking institution than to shop around.

This means that many of those 3 in 5 customers who are taking out a credit card, savings account, or personal loan have probably not compared the best deals available for their situation.


Strong regulation

All Authorised Deposit-Taking Institutions (ADIs) are regulated under the same Banking Act. This means that Mutual Banks must meet the same prudential standards as other banks. The $250,000 government guarantee on deposits also applies to all ADIs including mutual banks.

Competitive interest rates

Customer owned institutions do on average offer very competitive rates across both credit and savings accounts.

Bank rates listed below are based off all banks listed on Canstar’s database (excluding mutual banks) available for the products noted. Customer Owned Institution rates listed are based on all mutual banks, building societies, and credit unions in Canstar’s database available for the products noted.

Credit Cards

As the table below shows, customer-owned institutions offer average interest rates and fees that are lower, on average, than the banks on our database. For consumers that carry an ongoing debt, this can be useful to know.

Standard Credit Cards Interest Rate Ongoing Fee Upfront Fee
Bank 17.82% $52.97 $52.97
Customer Owned 12.89% $35.59 $3.67
Mutual Bank 12.57% $28.06 $8.33
Credit Union 12.90% $35.70 $2.67
Building Society 13.21% $43.00 $0.00
Difference Between Bank and Customer Owned -4.93% -$17.38 -$49.30
Source: Average rates current as at 26 May 2016.

Home Loans

When it comes to servicing loans – whether that’s your home loan, personal loan, car loan, or business loan – the interest rates offered by mutual banks stack up well against the competition. Recent changes to capital adequacy requirements for banks have helped create somewhat of a more level field of competition.

Our analysis indicates that the average standard variable home loan rate of the mutual banks has been consistently lower than the standard variable home loan rate of the major banks over the past two years. It should be noted, though, that this does not take into account discounts offered on the standard rate, either via a no frills, low-rate loan, or via a package. These discounts can be substantial.

The table below shows the average rates currently available on the Canstar database. As you can see, the average bank wins out when it comes to variable rates – although you could still get a lower rate from a credit union specifically. However, it’s a different story when it comes to fixed rates…

Standard Variable Home Loan (Non-Package)
Bank  4.84%
Customer Owned  4.86%
Mutual Bank  4.89%
Credit Union  4.80%
Building Society  4.89%
Difference Between Bank and Customer Owned  +0.02%
1 Year Fixed Rate Home Loan
Bank 4.43%
Customer Owned 4.27%
Mutual Bank 4.21%
Credit Union 4.36%
Building Society 4.23%
Difference Between Bank and Customer Owned -0.16
2 Year Fixed Rate Home Loan
Bank 4.24%
Customer Owned 4.21%
Mutual Bank 4.16%
Credit Union 4.32%
Building Society 4.14%
Difference Between Bank and Customer Owned -0.03
3 Year Fixed Rate Home Loan
Bank 4.28%
Customer Owned 4.26%
Mutual Bank 4.20%
Credit Union 4.41%
Building Society 4.17%
Difference Between Bank and Customer Owned -0.02
5 Year Fixed Rate Home Loan
Bank 4.79%
Customer Owned 4.67%
Mutual Bank 4.58%
Credit Union 4.75%
Building Society 4.68%
Difference Between Bank and Customer Owned -0.12
Source: Average rates current as at 26 May 2016.

In defence of the larger institutions, it should be noted that while the loan rates above are based on the standard advertised rates available, many customers can negotiate a cheaper rate or purchase a package product from their lender.


The mutual banks also offer competitive interest rates across their savings products. When it comes to stashing your cash, mutual banks are worth a look – although competition is certainly fierce.

Average Online Savers for $10,000 Base Rate Total Rate
Bank 1.74% 2.38%
Customer Owned 1.77% 2.09%
Mutual Bank 1.90% 2.27%
Credit Union 1.68% 2.02%
Building Society 1.74% 2.00%
Difference Between Bank and Customer Owned +0.03 -0.29

Average rates current as at 26 May 2016.

Term Deposits

Term deposits are another great way to find value from a mutual bank. The table below shows what rates are on offer for a $50,000 term deposit investment.

3 Month Term Deposit
Bank 2.57%
Customer Owned 2.52%
Mutual Bank 2.61%
Credit Union 2.34%
Building Society 2.60%
Difference Between Bank and Customer Owned -0.05
6 Month Term Deposit
Bank 2.63%
Customer Owned 2.59%
Mutual Bank 2.68%
Credit Union 2.43%
Building Society 2.67%
Difference Between Bank and Customer Owned -0.04
1 Year Term Deposit
Bank 2.69%
Customer Owned 2.69%
Mutual Bank 2.73%
Credit Union 2.59%
Building Society 2.74%
Difference Between Bank and Customer Owned 0.00
2 Year Term Deposit
Bank 2.72%
Customer Owned 2.80%
Mutual Bank 2.82%
Credit Union 2.66%
Building Society 2.92%
Difference Between Bank and Customer Owned +0.08
5 Year Term Deposit
Bank 2.95%
Customer Owned 2.98%
Mutual Bank 3.06%
Credit Union 2.86%
Building Society 3.04%
Difference Between Bank and Customer Owned +0.03

Average rates current as at 26 May 2016.

Compare your options on the Canstar website and find out how a customer-owned bank could serve your needs.

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