“Why bank when you can credit union?” I remember hearing this catch phrase on a long running advertisement for the local credit union when I was growing up. While the ad obviously got my attention, I was always unclear about what a credit union was.
Abacus, the industry body for credit unions and building societies (called mutuals), has recently called on the government to make changes to the National Banking Act in order to address this very concern.
The Act currently refers collectively to credit unions, building societies and banks as ‘authorised deposit-taking institutions’ (ADIs) but Abacus wants this to be changed to ‘authorised banking institutions’ because, quite frankly, who knows what an ADI is?
“Anyone outside financial services has no idea what an ADI is. It sounds like a part for a computer,” Abacus CEO Louise Petschler says.
According to Ms Petschler, the new term would not only help consumers understand what a mutual is, it would also address misconceptions that they are not as safe as banks.
So what exactly is the difference between a bank and a credit union or building society? Essentially, a credit union or building society serves exactly the same functions as a bank. You can deposit your money with them, get yourself a credit card as well as a home loan.
The key difference between mutuals and banks is that they are owned by their members, rather than shareholders. If you become a member you become an owner, and for this reason, so the theory goes, you always come first – with profits going back into better rates, fairer fees and customer service.
Mutuals are also regulated in exactly the same way as banks, and are just as safe. In fact according to Abacus, with the bulk of mutuals’ funding coming from members’ deposits, as opposed to wholesale capital markets, they are particularly safe options. So if you’re on the hunt for your home loan, or if you’re unhappy with your existing banking arrangements, why not check out what your local mutuals have to offer.
Don’t forget, there is a raft of home lenders out there so be sure to shop around before choosing your mortgage provider. The right loan can save you tens, if not hundreds of thousands of dollars over the life of a loan.