What is a mutual bank, and what are the benefits of joining one?

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If you're looking for a place to keep your money, big national banks and online banks aren't your only options. Mutual banks are depositor-owned financial institutions that operate for the benefit of their customers rather than outside shareholders. That structure can translate to competitive rates, lower fees, and a greater focus on the local community — but there are potential drawbacks, too.

Here's how mutual banks work, their pros and cons, and how to decide whether one is right for you.

Mutual savings banks, or mutual banks, offer all the same accounts you can get at other banks, but they have some fundamental differences. These institutions are owned by customers instead of shareholders, and their main focus is on giving you access to savings accounts and mortgages.

Mutual banks, which represent less than 10% of all financial institutions in the U.S., tend to be small. While they may lack some of the conveniences you get with large banks, such as technology-driven services and vast ATM networks, there are some compelling reasons to switch banks and join a mutual institution:

Competitive rates on deposit accounts and loans

Policies and programs that make mortgages more accessible

More fiscally conservative and less likely to fail than large banks

Since they were first established in the U.S. in 1816, mutual banks have always had a focus on helping working-class customers and people with limited income.

Their initial purpose was to give customers a place to deposit money and earn interest, and early on, deposits as small as a dime were accepted. Some mutual banks were similar to social clubs or lending circles, with members chipping in to help one another purchase homes.

Mutual banks have maintained a focus on mortgages as they've evolved, and nearly all of them are now community banks that specialize in mortgage lending. Today, there are just under 500 of these banks in the U.S., although many are located in New England (especially Massachusetts) and the Midwest.

Credit unions and mutual banks have some similarities. Both types of institutions are owned by and operated for the benefit of their customers, or "members," as credit unions call them. Like mutual banks, credit unions offer competitive interest rates when compared to large banks and some also invest in their communities. But here are a few ways mutual banks are different:

Membership isn't required to open an account, but they often serve limited locations

Mutual banks are a great option if you're looking for competitive rates on your deposits or if you want a bank that invests in your local community. A mutual bank could also be the key to qualifying for a mortgage if you're struggling to get approved elsewhere.

For people who prioritize digital tools and perks, you might not have as many options for mutual banks versus traditional banks, but some of these smaller institutions can compete in that area, too. You should have no problem finding a mutual bank that offers features like a mobile app, contactless payments, and security alerts.

The main drawback you might encounter when looking for a mutual bank is local access. Currently, there are no mutual banks located in the following states:

If there is a mutual bank in your community, check their branch or ATM locations to make sure you can visit them if needed.

What is the difference between a mutual bank and a normal bank?

Mutual banks are owned by customers instead of shareholders. They tend to have lower fees and pay higher interest rates than "normal" or traditional banks, but they serve smaller geographical locations.

Some of the largest mutual banks in the U.S. are Bristol County Savings Bank, which operates in Massachusetts and Rhode Island, Union Savings Bank in Connecticut, and Gate City Bank in North Dakota and Minnesota.

What are the requirements for a mutual bank?

Some mutual banks require you to live in a certain state or within a set list of ZIP codes in order to open an account.

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