Last Updated: 20th September, 2022

Are you always better off with a customer-owned bank?

Mutual banks, credit unions, and buildings societies all fall into the customer-owned banking sector in Australia but not many people actually know how these banks differ from other banks and lenders.

What do customer-owned banks actually do differently and will you always get a better deal?

What are customer-owned banks?

According to the Customer Owned Banking Association (COBA), customer-owned banking is the “fifth pillar” in banking after the ‘big four’ (Commonwealth Bank, ANZ, Westpac and National Australia Bank), providing much-needed competition to the banking sector.

The main benefit is that they operate for the benefit of its customers rather than purely for profit.

Profits actually go back into providing better products and services as well as into the local community and environment.

But with around $92 billion in assets, are they really operating in your best interests?

Comparing them to standard banks

The main difference between mutual banks and the major banks and lenders is that customer-owned banks aren’t listed on the Australian Securities Exchange (ASX).

Instead being owned and controlled by shareholders and investors, customer-owned banking essentially means that customers own a share in the bank.

Each member share amounts to one vote on the bank’s governance including the selection of board members and other major company changes like closing and opening branches.

COBA would like to argue that for this reason, customer-owned banks aren’t profit-driven.

Instead, all profits are invested back into improving their products, providing better customer service and charging fair fees.

Do they offer the same type of finance?

Customer-owned banks offer the same products and services such as home loans, personal finance, term deposit accounts and credit cards.

Are they still tightly-regulated?

Because they’re still so-called Authorised Deposit-taking Institutions (ADIs), customer-owned banks like building societies and credit unions must still adhere to the regulations as other banks and lenders.

These regulations are set out in the Banking Act 1959 and enforced by the Australian Prudential Regulatory Authority (APRA).

They must also adhere to the Corporations Act 2001 (enforced by the Australian Securities and Investments Commission) so there’s no shirking their responsibilities as an Australian financial institution.

What are the benefits?

Some of the benefits of getting a home loan with a customer-owned bank include:

  • Lower interest rates, no upfront fees (usually) and low ongoing fees including monthly and account-keeping fees.
  • You become a part owner in the bank and have a say in significant company decisions.
  • You get the same consumer protection as if you were applying a major bank.
  • Code of Practice: Apart from the Banking Act 1959 (regulated by the Australian Prudential Regulatory Authority), customer-owned banks adhere to COBA’s Code of Practice, which sets out ’10 Key Promises To You’ in relation to acting in the best interests of customers (responsible lending) and the local community and environment.
  • Deposits up to $250,000 are covered by an Australian government guarantee.

Will you always get a lower interest rate?

Not always but research from Choice found that customer-owned banks consistently offer better interest rates on all of their products including home loans.

The average standard variable home loan rate for owner-occupiers in the customer-owned banking sector was 69 basis points lower than the average advertised standard variable rate offered by the four major banks before the rate rises in late 2015.

The difference works out to a saving of around $160 a month for a $400,000 home loan on a 25-year term.

Do they really offer better customer service?

Roy Morgan research found that building societies had the highest customer satisfaction rating as of May 2015 (93.8%), followed by mutual banks (92%) and credit unions (90%).

This compared to the big four’s rating of 81.5%.

What are the drawbacks?

Although customer-owned banks can often offer you a better interest than other banks and lenders, you generally have to be a strong borrower to get approved.

Unlike some of the other lenders on our panel, the following generally applies to mutual banks:

  • Borrowing limited to 90-95% of the property value: This means you’ll need a 5-10% deposit as a minimum. Some of our non-mutual bank lenders offer guarantor loans meaning you can borrow up to 105% of the property value or Loan to Value Ratio (LVR).
  • Slower settlement times: The time from your application being submitted and the home loan being settled can sometimes blow out to 3 or 4 weeks, particularly if the bank is offering a special interest rate. This compares to average processing times of 2 weeks.
  • Nothing outside of the box: What this means is customer-owned banks tend to only deal with customers who have a good deposit, a clear credit history can provide complete evidence of their financial situation, are Australian citizens and work either full time or part time. This is what mortgage brokers call “vanilla” clients and if you fall outside of this definition, you’ll likely be declined by these lenders.

Do you work on a casual or contract basis?

Can’t provide your full financials because you’re self-employed?

Have little to no deposit?

Have black marks on your credit file?

There are other lenders that can help you including major banks.

Give us a call on 1300 889 743 or complete our free assessment form to speak with one of our specialist mortgage brokers and find out how we can help.

Which banks are customer-owned?

Australia’s mutual banks, credit unions, and building societies include:

  • bankmecu: Australia’s first mutual bank
  • Community First Credit Union: The largest credit union operating throughout Sydney and the Central Coast region
  • Border Bank: Services employees of the Australian Customs and Border Protection Service
  • G&C Mutual Bank: Formerly SGE Credit Union
  • Heritage Bank: The largest customer-owned bank in Australia.
  • P&N Bank: Formerly known as a the Police & Nurses Credit Society, P&N is WA’s largest locally-owned bank
  • Police Bank: Customs Bank is a division of Police Bank
  • Teachers Mutual Bank: Formerly the Hornsby Teachers Association Credit Union

Not all customer-owned banks are included in the above list.

A couple of the mutual banks are on our lending panel which means we have much more negotiation power in regards to getting you a discounted interest rate and getting you approved to borrow at a higher Loan to Value Ratio (LVR).

Check our lending panel page for more information.

Even if the customer-owned bank isn’t on our lending panel, we may still be able to get you approved!

You can find a more comprehensive list of customer-owned banks on the COBA website.

How do customer-owned bank help the community?

One of the definitions of a mutual bank is that it supports the local community through social responsibility and, in some cases, environmental responsibility.

The following three mutual banks support the local community in the following ways (contribution figures accurate as at May 2015).

Teachers Mutual

Spends 4.55% of pre-tax profits on community investment which is 12.6 times the average for the financial services sector in Australia and New Zealand.


Developed ‘Conservation Landbank’ to help protect natural forests in Victoria’s west Wimmera region, with 927 hectares purchased for protection since 2008.

Community First Credit Union

Donates half the annual fee on its 8.99% credit card (for purchases, cash advances, and balance transfers) to the McGrath Foundation.

What is COBA?

The Customer Owned Banking Association (COBA), the main industry body, represents 74 credit unions, 6 building societies, and 12 mutual banks.

They also represent 13 so-called friendly societies or mutual societies which provide savings, investment and insurance products to help its customers plan for life events like education, retirement, health, and travel.

The association started out as the Association of Building Societies and Credit Unions (Abacus – Australian Mutuals) in 2006, a merger between the Credit Union Industry Association (CUIA) and the Australian Association of Permanent Building Societies (AAPBS).

On 1 July 2013, it was relaunched as COBA.

Do you need a home loan?

Please call us on 1300 889 743 or complete our free assessment form to speak with one of our specialist mortgage brokers.

We can properly assess your situation and recommend home loan solutions that best suit your needs and ultimate financial goals!