The big banks present an image of stability and offer a wide breadth of services that all seem incredibly appealing when deciding where to entrust you family’s finances. But credit unions, with lower rates and a more personal touch, can be a much better option for family banking.
Value for the dollar
House hunters doing even the most preliminary research soon discover that Australian credit unions and mutual banks offer better home loan rates than the big four banks, as reported on CreditCardCompare. Even the big four banks are trying to use this information to gain new customers. St George Bank, for example, says it "will beat any home loan rate from ANZ, CBA, NAB and Westpac" - even though St. George is actually owned by Westpac.
The difference can mean a longer family holiday or a better car: consumers can save up to $1,000 a year by switching from the worst to the best loan, according to a recent study.
Credit unions are fully aware that their marketing budgets are too small to compete with the big banks, so the most effective way to get new customers is to offer a better deal. At least one credit union, CUA, even offers a package that pegs its rate to the average of the big four - and offers a home loan at 1% pa lower.
The value comes from smaller budgets for staff and marketing, as well as a stricter approach to home lending, which in part helped customer-owned institutions avoid massive losses during the financial crisis. The better rate is also a reflection of their philosophy: while banks are driven by profit and return to the shareholder, the customer-owned institutions are responsible to their customer-owners, so at the end of the year profits go into new services and reduced fees.
Customers are the priority
While banks offer more extensive ATM networks and access to more financial specialists, this doesn’t always translate into better service, or at least not the kind of service customers expect.
Average home loan customers at the big four are even less impressed, averaging just 75% customer satisfaction according to Roy Morgan Research. By comparison, bankemecu, a mutual bank, and CUA, the largest customer-owned financial institution in Australia, score above 90%. This shouldn’t be surprising: because customer-owners are the main concern of the credit unions, they are more likely to go out of their way to serve them better.
While banks get new business by growth overseas or acquisitions of smaller rivals at home, credit unions and mutual banks have to rely on attracting new members one at a time, frequently by word of mouth. This means you will probably get more attention to your queries than what you can expect at a bigger bank, where you are, after all, one of millions of customers.
More understanding, less fees
While the credit tightness affected the big banks as much as the credit unions, customers at the latter are more likely to be able to explain their financial situation in person and work out a compromise with a credit union. For families that have gone through tough financial times, this could mean the crucial difference in getting a home loan. In addition, credit unions are generally much more flexible with account and transaction fees, and rarely have low minimum balance requirements on par with big banks.
Families and communities
Credit unions typically participate in the local communities they serve on a much bigger scale - given their limited resources - than international banks. Many spend a significant amount on supporting local groups: the Teachers Mutual Bank sends 4.2% of pre-tax profits toward community investment. This means that, at the branch, you are much more likely to be treated like a member of that community. For new residents and young families in particular, this can be a draw in itself, as it can open doors to other services and serve as introduction to your neighbours.
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