Often when people think about banking, they always think about commercial banks. Mutual banks hardly come to mind, but these banks offer investment opportunities that are often overlooked.
Justmoney finds out how mutual banking is different from commercial banking and why you should invest in it.
Tip: Compare savings accounts here to find the one that best suits your needs.
According to the Banking Association of South Africa (BASA), a mutual bank is owned by its depositors. It’s set up specifically to be operated for the benefit of the depositors.
The history of mutual banks is that they were designed to uplift the poor and the working class.
According to the Finbond website, its aim is to encourage people to save by creating a safe place to deposit money and to offer benefits such as interest on deposits and dividends on mutual bank shares, and to invest conservatively for the purpose of generating profits.
On the other hand, a commercial bank is a public company registered as a bank in terms of the Banks Act and owned by its shareholders, who are not necessarily depositors or customers of the bank, says Sindiswa Makhubalo, head of department for banks and payments at the Financial Services Conduct Authority.
“Commercial banks tend to be subject to greater regulation and controls and have a more comprehensive offering of products and services,” says BASA.
Mutual banks tend to have a more limited offering of products and services, with a corresponding level of regulation.
Besides the recently liquidated VBS Mutual Bank, we have two mutual banks in South Africa – GBS Mutual Bank and Finbond Mutual Bank.
Why should you invest in a mutual bank?
A mutual bank is an alternative to commercial banks – taking into account, amongst others, business plans or activities to be undertaken by either form (presumably this also takes into account some of the stringent legal requirements put in place for establishing a commercial bank), says Makhubalo.
The option of opening a mutual bank can also be advantageous to its members, and, or customers in that it reduces the costs for providing services which isn’t the case with commercial banks, she adds.
When you deposit funds in a mutual bank, you’re buying an ownership stake in the bank and are entitled to vote at the shareholders’ meeting and appoint directors. For instance, you can receive one share for every R1000 you invest.
Mutual banks invest conservatively which means these banks are able to avoid some risks (such as market votality) that are faced by commercial banks.
You’ll receive the best customer service because workers know they’re serving the owner. In addition to that, mutual banks are always smaller and therefore you’ll get all the attention that you need.
Because you’re a shareholder you’ll also receive dividends if the bank is doing well. However, this depends on the types of shares that you hold. Your dividends can be paid monthly, quarterly, half yearly or annually.
And finally, you’ll get higher interest rates on your savings and lower interest rates on loans because the profits made by the bank are invested back into the bank.
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