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Big Banks Exposed at Royal Commission: Others are a Better Choice

If the dodgy behaviour of our biggest banks revealed by the banking royal commission has you thinking you need to switch banks, then a group of small, supposedly ethical banks are dying to have you. The banks in question are ‘customer-owned banks’, but are probably better known as mutual banks, credit unions and building societies. These businesses differ from the major banks in one key respect: they don’t have shareholders.

This may not sound like much, but defenders of the model say it makes a big difference because it removes a fundamental conflict of interest.

What is a customer-owned bank?

The ownership model was the key point of difference. ‘Customer-owned banks’ are not listed and there are no shareholders. They are effectively owned by their members, which are the customers. That means 100% of profits go back to customers, not as cash, but through product development and investment in the business.

Customers have a vote at general meetings – something that only shareholders have in listed companies like the major banks. Unlike listed companies – where the more shares you have, the more votes you have – customer-owned banks strictly allot one vote per customer. This means there was not the constant pressure on the bottom line to drive returns to shareholders.

For those who are afraid that smaller banks might be riskier, you can be reassured that they faced the same strict regulatory regime as big banks, and often had higher capital adequacy requirements. As with big banks, deposits up to $250,000 are guaranteed by the government.

How do they stack up as consumer products?

Customer-owned banks were increasingly competitive and makes up most of the recommendations made to our clients as the products are not only superior they are almost always cheaper. Based on the best four Customer Owned Banks home rates (3.68%) in comparison to the Big Four (4.45%), the average saving is 76bps or on a $400K home loan, a massive life time saving of $47,457!

There’s been quite a transformation over the last few years. They have a depth of product range that is very attractive. One potential drawback is that they don’t all have the national network of brick-and-mortar branches like the big banks. But they all have internet banking these days, and people don’t use branches so much anymore.

Most customer-owned banks were members of the ‘Ready Network’, which gives customers free access to NAB’s ATMs – so there’s really no disadvantage on that front.

On actual products like home loans and deposit accounts, he said they were very much on a par with listed, shareholder-owned banks. On savings accounts he said customer-owned banks were better. While on credit cards, he said they had much lower purchase rates.

Talk to us about an option that may suit you on 1300 861 143.


This information is current as at 24/05/18. This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.

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