It's easy to be sceptical of banks. If you don't like big banks, there's an alternative, though: credit unions. Credit unions have become increasingly popular, but there are still a lot of misconceptions about how they work and what they offer.
Illustration by Sam Woolley
Myth: Credit Unions Don't Make Money
Banks are for-profit institutions that make money from their customers, like any other business. Credit unions work a little differently. Like banks, they still keep your money and offer loans such — but they're not for profit and have "members" instead of customers. When you open an account at a credit union, you become a member and part owner, which basically means you have a vote in the organisation’s governance.
Traditionally, many credit unions also aim to support their community, promote financial literacy, and offer financial counseling. However, as one reader pointed out, none of this is to say that credit unions aren't interested in making money:
It's not like credit unions rely on donations like charities or other non-profit organisations. Credit unions have to earn enough from loans and investments to pay for their operating expenses. Profit isn't always a bad thing. Not only do they have to keep the lights on, but when their profits are higher, they can also offer their members lower interest rates on loans, and higher rates on savings. In short, they're more likely to pass some of their savings and profits back to their members than simply churn the money into expanding operations or paying executive bonuses.
The priorities of credit unions may be different than banks, but they obviously still benefit when they open more accounts and increase their assets — and so do members.
Myth: It's Hard to Get a Membership
Unlike banks, credit unions are more community driven, something that's reflected in the history of the institution. They were meant to be an alternative to banking for people in specific industries, fields, or geographic locations. That's not necessarily the case now. According to the Customer Owned Banking Association:
"Anyone can join and become a member. Each member of a credit union, mutual building society and mutual bank owns the organisation they belong to, and have a vote in the organisation's governance."
Chances are, there's a credit union in your area, too. You can search for one near you with this Australian Credit Union Directory.
Myth: Credit Unions are Inconvenient
You might think that because credit unions are generally smaller than the big banks, they might not offer the same conveniences and luxuries as the bigger players. That's not necessarily true. Many credit unions also offer digital banking now, too. Credit Union apps and services have a reputation for being behind big banks when it comes to conveniences like mobile check deposits and transfers, but they're usually just as convenient. Many credit unions have apps that let members deposit checks, transfer balances, and do all the other stuff you're used to doing with your large bank's mobile app.
Myth: Credit Unions Aren't Safe
That's just untrue. All Australian deposit-taking institutions, including banks and credit unions, have to meet the same strict standards of the Banking Act; all of which are legally-enforceable. The standards are overseen by the Australian Prudential Regulation Authority (APRA).
Overall, most credit unions offer the same financial products as a traditional bank: checking and savings accounts along with credit cards. Credit unions can offer better rates and lower fees. And the loans they do offer often have better terms. According to Credit Card Compare:
"In fact, Australian credit unions pride themselves on their rates precisely in relation to the rates of the Big Four. Their advertisements and websites frequently point out exactly how many basis points their home loans are below the Big Four average."
It's not to say credit unions are perfect. As consumer group CHOICE puts it:
"It's probably true that you're likely to have fewer bank-related headaches with a customer-owned bank. But they are still, after all, profit-driven businesses who act much like banks listed on the share market when it comes to standard banking services like mortgages, personal loans and credit cards."
But there's a reason they're becoming more popular: people are tired of banks, and credit unions seem to be a refreshing alternative. Plus, thanks to this increased interest, most credit unions have stepped up their game and now offer a lot of mobile conveniences and other perks. For the most part, most of the myths about credit unions are simply outdated.