Banks, mutual banks and credit unions - what’s the difference?

When deciding who to manage your money with, there’s more than just traditional banks to choose from. So, what makes mutual banks, and credit unions different? Let’s have a closer look. 

What is a traditional bank?

A traditional bank is a for-profit financial institution that offers services like savings accounts, term deposits, loans, and investment products. Banks are often owned by shareholders and are focused on generating profits for these shareholders.

What is a mutual bank & credit union?

A mutual bank (or credit union) is a financial institution owned by its members rather than external shareholders. Both offer similar services to traditional banks but often with a stronger focus on customer benefits and community involvement.

Both credit unions and mutual banks fall under the 'customer-owned' umbrella, meaning they are owned by their customers rather than private shareholders. There is a subtle difference however. 

Credit unions often operate in smaller areas than traditional banks, though their size can vary. Some larger credit unions operate across multiple states, while others focus on a specific region. They do offer services similar to banks, such as deposit accounts, loans, and insurance.

Meanwhile, mutual banks are essentially credit unions that have gone through the approval process to call themselves a ‘bank’. The main difference is in the naming, as mutual banks offer similar services to both credit unions and traditional banks. 

When you open a bank account with either institution, you become a member. Since both are customer-owned, profits are reinvested to provide more benefits for members, including better rates and lower fees.

Fun Fact: According to the Customer Owned Banking Association, over 5 million Australians are with a customer-owned bank!

Advantages of traditional banks:

1. Extensive branch and ATM networks: Major banks often have a large number of branches and ATMs, providing convenient access for customers.
2. Advanced technology: Banks generally have substantial resources to invest in cutting-edge digital banking technologies.
3. Global reach: Some large banks often have an international presence, which can be beneficial for customers who travel or do business globally.

Advantages of mutual banks and credit unions:

1. Member-owned model: As member-owned institutions, mutual banks and credit unions often prioritise customer benefits over shareholder profits.
2. Potentially better rates and fees: Without the pressure to maximise shareholder returns, these institutions may offer more competitive interest rates on savings and loans, as well as lower fees.
3. Personalised service: Smaller size and community focus often translate to more personalised customer service.
4. Community involvement: Mutual banks and credit unions typically have a strong commitment to supporting local communities and causes.

Disadvantages: 

1. Traditional banks:
   • Can be more profit-driven, potentially resulting in higher fees and less favourable interest rates.
   • May have less flexibility in decision-making due to larger organisational structures.
2. Mutual banks and credit unions:
   • May have fewer physical branches and ATMs.
   • Could have less advanced digital banking features compared to some large traditional banks.

Your final decision will depend on your personal finance priorities. To help, here are some key factors to compare around both finances and accessibility:  

Financial benefits:

• Interest rates: Mutual banks and credit unions can sometimes offer higher savings rates and lower home loan rates than traditional banks.
• Fees: Usually, mutual banks and credit unions can charge lower fees for services and account maintenance.
• Customer service: Smaller institutions often provide more personalised service, while large banks might offer more extensive support hours.

Accessibility:

• Branch locations: Traditional banks usually have more extensive branch networks.
• ATM access: Large traditional banks often have more ATMs, but many credit unions and mutual banks participate in shared ATM networks to expand access.
• Digital services: While big banks might have more advanced digital platforms, many mutual banks and credit unions now offer competitive online and mobile banking services.

Where to compare providers?

You'll generally be able to tell if a provider is a credit union, mutual bank, or traditional bank by name. Head over to our bank account hub page and compare providers.