Money

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 www.paulsmoney.com.au for more information.

Topics:  banks, competition, paul clitheroe


Join the Community.

Get your local news, your way.

Stay Connected

Update your news preferences and get the latest news delivered to your inbox.

BUDGET 2016: Tax cuts for firms pulling in up to $10m

Australian Federal Treasurer Scott Morrison speaks at the despatch box during the delivery of the 2016-17 Federal Budget in the House of Representatives at Parliament House in Canberra,

It will cost the federal government $5.3 billion in lost revenue

Aerospace future up for talks

Ipswich will be included in workshops to discuss an aerospace hub

Did Federal Budget forget about Queensland?

Queensland Treasurer Curtis Pitt says we've been forgotten.

Queensland short-changed by at least $1 billion in federal budget

Latest deals and offers

New edition of teaching book

Serviceton South State School teacher Alan Cockerill has just completed translating one of his favourite books to English.

BUDGET 2016: Tax cuts for firms pulling in up to $10m

Australian Federal Treasurer Scott Morrison speaks at the despatch box during the delivery of the 2016-17 Federal Budget in the House of Representatives at Parliament House in Canberra,

It will cost the federal government $5.3 billion in lost revenue

Aerospace future up for talks

Ipswich will be included in workshops to discuss an aerospace hub

Did Federal Budget forget about Queensland?

Queensland Treasurer Curtis Pitt says we've been forgotten.

Queensland short-changed by at least $1 billion in federal budget

Budget 2016: Upper-middle Aussie will get the rewards

Smokers will be hit with hefty increases in taxes over the next four years.

Small businesses and big earners to get tax cuts

A smarter way to beat Australia's $53b congestion

Regional capitals service more than 4 million in Australia

Spectacular Crash as Corvette Flips at Drag Races

Corvette flips at 350kmh.

Driver walks away from 350kmh crash in Texas.

Star Wars: Force Awakens told in Emojis

Disney has released an emoji version of The Force Awakens.

To commemorate Star Wars Day, Disney releases emoji version of film on a smart...

NYPD join dance challenge

New York Police respond to NZ dance challenge.

New York's finest accept Kiwi dance challenge.

Demand for acreage lots pushes up property prices

Property values in Cooroy have increased 25%

Property values jump in Cooroy and Peachester.

How a sacked real estate agent made $725k in four months

Agent is now under investigation by the industry watchdog

RBA warns of future apartment oversupply

Toowoomba: Crest Apartments and Burke & Wills, Ruthven Street ( view from Neil Street) Photo Bev Lacey / The Chronicle

RBA says oversupply of apartments poses risk to household finances