New banks on the horizon

Paul Clitheroe
Paul Clitheroe

COMPETITION among financial institutions is always good for consumers, and the new wave of 'mutual banks' could help more Australians enjoy a better deal.

You may have noticed lately that a number of credit unions and building societies - collectively known as 'mutuals', are making the switch to become 'mutual banks'.

The Defence Force Credit Union became Defence Bank earlier this year. Then, in April, Teachers Credit Union transformed into Teachers Mutual Bank.

Unlike our big banks, these mutual banks aren't listed on the stock exchange - and their customers or 'members' voted in the change. However there are good reasons behind the shift from credit union to mutual bank.

Building societies and credit unions can find it hard attracting deposits from super funds or other large institutional investors, which may only be permitted to invest with a fully fledged bank.

By becoming a bank, mutuals can expand their deposit base, which beefs up their funds available for lending, and allows the newly formed mutual bank to offer competitive car loans, personal loans and mortgages on a large scale.

This all coincides with a growing awareness of the mutual sector - undoubtedly helped along by the big banks' decision to break ranks with the Reserve Bank interest rate cycle. The consumer backlash has benefited many smaller lenders, and some mutuals such as (then) Teachers Credit Union, claim to have enjoyed 21% home loan lending growth from January to February this year alone.

So how well do mutuals stack up when it comes to saving money? A quick look at comparison site RateCity shows that with, say, Newcastle Permanent you can secure a home loan costing 6.33%;  Heritage Bank, another mutual, charges around 6.45%; or with Gateway Credit Union package home loans are available costing 6.6%.

Those rates are well below what you could pay with larger financial institutions. In mid-April for instance, the ANZ Bank lifted its standard variable rate to 7.42%.

Car and personal loans are an area where mutuals have traditionally been very competitive, and they continue to offer low rate products today.

As a guide, Teachers Bank charges 8.39% on a secured new car loan or 10.18% for older vehicles. This compares to say, 10.99% with a Westpac loan though fees and charges can push Westpac's comparison rate (which includes these costs) up to over 12%.

I'm certainly not bank bashing, and Australians are fortunate to have a healthy financial sector that includes a generous choice of institutions - large and small.

However a golden rule of personal finance is to shop around for the best deal. The internet makes it very easy for us to do this, and thanks to online banking it's not necessary to bank with an institution that has a wide branch network.

Many of Australia's smaller lenders and mutual organisations are highly competitive, that makes them worth a look if you want to save money on key household financial products.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit for more information.

Topics:  banks competition paul clitheroe

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