Building societies or banks: what you need to know
Thanks to the recession, your average consumer in the UK can boast considerably better financial knowledge than a decade ago. The growth of online comparison websites also means that people are much more aware of their options, and how much money they can save simply by doing a little research.
However, many consumers are still confused about one thing: the difference between a bank and a building society. What is it exactly that makes a bank different from a building society – and should we be choosing one over the other?
The difference between a bank and a building society
Conventionally, the main difference between a bank and a building society is its shareholders. Banks are listed on the stock market and are owned and run for the benefit of its shareholders. These shareholders are paid dividends from the bank’s profits.
Conversely, as this article from consumer website Love Money explains, a building society has no external shareholders. People who hold mortgages and accounts are counted as building society members who get to vote on its actions.
But this traditional divide between banks and building societies was turned on its head during the economic reforms of the 1980s. These reforms made it possible for banks to offer mortgages to consumers, a domain that was previously held by building societies. Simultaneously, building societies were allowed to offer traditional banking products, like current accounts, as well. Some building societies, like the ill-fated Northern Rock, eventually demutualised into banks.
Today, the primary difference between a bank and a building society is how they borrow money. Banks depend on wholesale money markets for their funds. Building societies also borrow money from these wholesale markets, but aren’t allowed to get more than half of their funds in this way. Since the credit crunch, both banks and building societies have had to rely more strongly on savers’ deposits too.
So while banks and building societies have essential differences, their range of consumer offerings is largely similar. Whether you choose to join a bank or a building society will depend on your particular financial circumstances, and the deals offered by each at any given time.
Joining a building society
If you’re thinking about joining a building society, it’s important to consider this decision in the same way you would joining a bank. Think about what you want – for instance, a high interest savings account, a new current account or a first-time mortgage – and look for providers who offer the best rates for you.
Financial comparison sites like Go Compare and Money Supermarket are always a good starting point. But if a particular building society catches your eye, it’s a sensible idea to look at their website directly as well, as some offers may not be advertised on comparison websites.
Additionally, don’t just assume that your money is safer in a building society. Check that the institution you favour is FSA-regulated and that your money will be covered by the Financial Services Compensation Scheme, which insures deposits up to £85,000 per person and investments up to £50,000 per person.
The contents of this article are for reference purposes only and do not constitute financial or legal advice. Independent financial or legal advice should be sought in relation to any specific matter. Articles are published by us without any knowledge or notice of the circumstances in which you or anyone else may use or rely on articles or any copy of the information, guidance or documents obtained from articles. We operate and publish articles without undertaking or accepting any duty of care or responsibility for articles or their contents, services or facilities. You undertake to rely on them entirely at your own risk, and without recourse to us. No assurance of the quality of articles is given or undertaken (whether as to accuracy, completeness, fitness for any purpose, conformance to any description or sample, or otherwise), or as to the timeliness of the publication.
Latest posts by Silversurfers Editor (see all)
- 4 reasons to go on an activity villa holiday with the family in 2017 - January 23, 2017
- Could these be the world’s most comfortable shoes? - January 23, 2017
- Look after the pennies! - January 22, 2017
- 5 Ways to Make your Bedroom more Chic - January 22, 2017
- Are you an under-roller or an over-roller? - January 22, 2017
Leave a Comment!
Community Terms & Conditions
These content standards apply to any and all material which you contribute to our site (contributions), and to any interactive services associated with it.
You must comply with the spirit of the following standards as well as the letter. The standards apply to each part of any contribution as well as to its whole.
be accurate (where they state facts); be genuinely held (where they state opinions); and comply with applicable law in the UK and in any country from which they are posted.
Contributions must not:
contain any material which is defamatory of any person; or contain any material which is obscene, offensive, hateful or inflammatory; or promote sexually explicit material; or promote violence; promote discrimination based on race, sex, religion, nationality, disability, sexual orientation or age; or infringe any copyright, database right or trade mark of any other person; or be likely to deceive any person; or be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence; or promote any illegal activity; or be threatening, abuse or invade another’s privacy, or cause annoyance, inconvenience or needless anxiety; or be likely to harass, upset, embarrass, alarm or annoy any other person; or be used to impersonate any person, or to misrepresent your identity or affiliation with any person; or give the impression that they emanate from us, if this is not the case; or advocate, promote or assist any unlawful act such as (by way of example only) copyright infringement or computer misuse.
Nurturing a safe environment
Our Silversurfers community is designed to foster friendships, based on trust, honesty, integrity and loyalty and is underpinned by these values.
We don't tolerate swearing, and reserve the right to remove any posts which we feel may offend others... let's keep it friendly!