Paul Clitheroe
Paul Clitheroe

Mutual banks give consumers choice

THE growth of mutual banks is giving consumers a genuine alternative to the big four banks. Choice is always good for consumers, and the timing couldn't be better with a range of reforms taking effect that make it easier to get a better deal on personal banking.

These days, building societies and credit unions can apply to the Australian Prudential Regulation Authority (APRA), the body that regulates Australia's banking industry, to use the term 'bank' in their name.

Bankmecu became Australia's first customer owned bank in September 2011. This was followed by QT Mutual Bank (formerly Queensland Teachers Credit Union), and Heritage Bank (previously Heritage Building Society) to name a few. 

So far, seven credit unions and building societies have become banks and there's a good chance more will follow. Police & Nurses Credit Society for instance is expected to become P&N Bank later this year.

One of the key concerns many people have when it comes to smaller financial institutions is the safety of their money. It's worth stressing that mutual banks, as well as credit unions and building societies, must meet the same strict capital requirements laid down by APRA that the large banks face.

All deposits held with a mutual are also backed by the government guarantee (up to $250,000 per person per institution) just like big bank deposits.

Research group Canstar recently reviewed the nation's seven mutual banks to see which offered the best value across a range of products, and Victoria Teachers Mutual Bank came up trumps for overall best value.

The availability of online and mobile phone banking means you don't have to live in an area where a mutual bank has a branch network to become a customer. And the growth of these new banks coincides with banking reforms that make it easier to switch accounts.

In the past, the process of transferring direct debits and credits from one account to another involved a fair bit of hassle, and this was a major stumbling block in changing banks.

Under the government's banking reforms introduced on 1 July, all you need to do is sign authorisation forms allowing the transfer of direct debits and credits to your new account, and your new bank will sort out the transfers  for you.

Other initiatives have also been introduced that make now a good time to check if your credit card is still competitive - and some of the best credit card reforms only apply when you take out a new card.

As a guide, you'll be able to nominate your preferred credit limit on a new card, which is a great way to keep card spending manageable. Over the limit fees are banned unless you agree to accept them, and card repayments must be directed to those parts of the balance that attract the highest rates such as cash advances. This helps you reduce the debt faster.

Even if you don't believe a mutual bank is right for you, the reforms, along with more competition for the big banks, make it worth a look to see if you could save money on key financial products. Check out sites like RateCity, Mozo or InfoChoice to see which institutions are offering the best deals.

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.

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