Banks and building societies: what’s the difference?
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If you’re looking for a loan, a high-interest savings account, mortgage or a similar product, your first instinct might be to head to nearest bank to find out what you can expect to pay. If you’re dissatisfied with what you’ve had to hear from that bank, you might ponder your options and think about where you can get the best value.
Banks might seem like the only people to turn to for a loan or current account, but building societies offer pretty much the same range of products. However, in terms of the way they operate and are organised, there are several major differences which to some degree affect the rates which customers are offered.
By and large, banks are owned by their shareholders if they’re listed on the stock exchange. Building societies on the other hand are owned by their members. Every year, bank shareholders are paid a dividend which often has a small but noticeable impact on interest rates offered to customers. This doesn’t happen at building societies.
Anyone who has a mortgage or savings account with a building society is considered a member. Membership entitles them to have a say in the way in which the society is run, take part in some votes and learn more about its inner workings, something that can’t be said of many banking chains.
According to the BBC, many societies started out as mutual institutions, choosing to stick to some of those principles, especially when it comes to acting in members’ interests.
In days gone by, banks were the only institutions that offered current accounts. Fortunately, this has changed, as many building societies offer them with similar interest rates. As for savings accounts, building societies were deemed to offer the best rates because they didn’t pay dividends to shareholders. This has shifted a little in recent times.
The differences between banks and building societies have become less pronounced, as many former societies have become banks under pressure from members who sought dividends. Despite that, many people prefer to join building societies despite the banks’ collective strength for reasons like transparency.
Cast of thousands
Membership of building societies depends entirely on customer numbers, but irrespective of size, they seem to be run entirely for the benefit of their customers. Yorkshire Building Society, for example, has over 8,500 members, and they ensure that their members have a say at their ‘Question Time’ meetings on issues close to their heart (related to the business, of course).
So the next time you’re thinking of taking out some kind of financial product, take the time to consider the options available other than those offered by your own bank. As we have seen, building societies have expanded their services in recent decades and they now offer credible financial alternatives to those which are offered by the banks. On top of this they also include some added benefits which you might not get from a high street bank without first becoming a shareholder.