Why mutual banks and credit unions have the happiest customers

Happy female mutual bank customer looking at her phone and credit card

At some point, every Australian might find themselves shopping around for a financial product, such as a home loan or a credit card. 

And while familiar brands like the Big 4 (ANZ, NAB, CommBank, Westpac) may be front of mind, Roy Morgan research shows the happiest customers actually belong to mutual banks or credit unions.

For context, mutual banks are credit unions that have gone through an application process with the Australian Prudential Regulation Authority (APRA) to call themselves a ‘bank’. Besides that, there’s not much difference between the two.

Right now over 30 mutual banks operate in Australia - a sector made up of more than four million Australian consumers. And for several years now, they’ve maintained the lead on customer satisfaction, according to Roy Morgan data.

In May 2020, mutual bank satisfaction levels hit a high 89.2%, a slight increase from a year ago. Meanwhile the four majors lagged behind at 77.2%. 

So what’s the magic behind mutuals? 

Mozo’s banking expert, Peter Marshall says it comes down to their personalised service and strong community focus. 

“Mutuals and credit unions tend to be smaller than a lot of big traditional banks and more focused on a geographic area or a type of customer, so they can be more in touch with their customers’ needs,” he says.

“There’s also that feeling of membership that they give you, because you have become a member of a mutual or credit union to use their product. 

“A lot of people like that they’re not just another number.”

Do mutual banks have an edge over the Big 4?

Benefits of mutual banks and credit unions

Besides size and focus, there’s another reason why mutuals can offer certain perks to their customers than big banks can’t: ‘ownership’. 

Unlike retail or commercial banks like the Big 4 or their subsidiaries, mutual banks and credit unions aren’t publicly listed, which means they don’t have any external investors who receive a portion of the profit pie. 

Instead, they’re 100% member-owned. 

“The main proposition of a mutual or a credit union is that they aim to give their customers overall better value than banks because they don’t pay their dividends out to shareholders. Customers are the shareholders,” Marshall says. 

“So the credit union or the mutual gets to reinvest any profits and uses it to improve their services and/or lower the cost of their products.”

Mutual bank interest rates: just how good are they?

While mutual banks and credit unions say they provide great value, you may be wondering whether that’s actually the case.

Well, Mozo’s number crunch reveals a resounding ‘yes’. 

Across all financial product categories assessed, mutuals and credit unions in the Mozo database proved to have more standout interest rates than the Big 4. In some categories like personal loans and credit cards, their rates were also more competitive than other commercial banks (excluding the Big 4).

Below, you’ll see average rates for the three sectors (customer-owned, Big 4, non-Big 4 commercial), as of 25 August 2020. You can click the links to compare each product yourself. 

Average rates snapshot

Financial productCustomer-ownedBig 4Commercial (excl. Big 4)
Home loan (owner occupier)3.52%3.65%
Home loan (investor)3.88%
Personal loan (unsecured)10.43%12.54%11.04%
Car loan (new)6.72%7.24%
Credit card12.73%18.88%17.90%
Savings account0.59%0.54%0.78%
Term deposit (12 months)0.95%0.67%0.91%

Let’s break it down further. For lending products, here’s how much lower average rates would be if you borrowed from a mutual or credit union rather than a Big 4 Bank:

Lending productMutual vs Big 4 - average rate difference
Home loan (owner occupier)0.13%
Home loan (investor)0.25%
Personal loan (unsecured)2.11%
Car loan (new)
Credit card6.15%

Out of these products, credit cards saw the steepest disparity. The average mutual bank rate sits a whopping 615 basis points below the Big 4 average. 

However, it’s worth noting that even the smallest rate difference recorded - 13 basis points with owner occupier home loans - can add up to tens of thousands of dollars lost or saved. 

For instance, say you’re taking out a home loan of $700,000 over 25 years: you can trim your monthly repayments by $49 and pay $14,716 less in interest over the life of the loan, just by going with the average mutual bank rate instead of the average Big 4 Bank rate. 

As for deposit products, the customer-owned sector also surpassed the Big 4, offering higher interest rates on average to savers:

Deposit product
Mutual vs Big 4 - average rate difference
Savings account
0.05% (for $10,000 balance)
Term deposit (12 months)
0.28% (for $25,000 balance)

What other benefits can I expect?

If you’re one of the growing number of Australians interested in ethical banking options, you’ll be pleased to know many mutual banks and credit unions fit the bill. 

Take one example: according to Market Forces, while the Big 4 Banks have all poured millions of dollars of funding into the fossil fuel industry since 2016, multiple customer-owned banks have actively avoided lending money to that industry. 

These include Newcastle Permanent, Qudos Bank, People’s Choice Credit Union, Bank Australia, and Teachers Mutual Bank, just to name a few.

Teachers Mutual Bank was even recognised in 2019 as one of the ‘World’s Most Ethical Companies’ by the Ethisphere Institute - one of just five banks globally to earn the honour.

Are mutual banks and credit unions safe?

Rest assured, mutuals and credit unions are as safe as your traditional bank. 

That’s because like any other bank, they are authorised deposit-taking institutions (ADIs). This means their customers’ deposits (of up to $250,000 per ADI) are protected under the government’s Financial Claims Scheme, so you can have peace of mind that your money’s safe and sound. 

If that doesn’t put you at ease, why not take it from the horse’s mouth. This year Mozo gave thousands of Australians a say in the 2020 Mozo People’s Choice Awards, and found all four winners of the ‘Highly Trusted’ category were mutual banks or credit unions:

  • Bank Australia
  • Bendigo Bank
  • Greater Bank
  • Newcastle Permanent

Your next steps

At the end of the day, who you bank with will depend on your situation and personal preferences. Some people are just after the best prices, but if qualities like good customer service and a strong sense of social responsibility stand out to you, then mutual banks and credit unions are sure worth a look. 

Just remember that with mutual banks and credit unions, you’ll need to sign up as a member before applying for some of their products. This usually comes with a small upfront fee (say, $5-$10), as you’ll need to become a shareholder to join. 

If you’re interested, our guide on mutual banks and credit unions has more information. 

Or if you’re ready to shop around for your next financial product, hop on over to our interest rates page to compare deals for home loans, personal loans, savings accounts and more.

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.