What is a Building Society?

A building society is a financial institution that is owned by its members. These institutions are similar to banks in that they provide banking and related financial services to their customers, but they primarily focus on providing home mortgage loans. Members of building societies are usually savers and borrowers.

Unlike banks, which are companies usually owned by shareholders, building societies operate for the benefit of their members. Profits made by building societies are distributed among the members, or reinvested to improve products and services, rather than being paid out to external shareholders.

Building societies originated in the United Kingdom in the 19th century as cooperative organisations that were mutually owned by members. The purpose of these organisations was to pool resources and provide home loans to members, allowing more people the opportunity to own homes.

Building societies are regulated in the UK by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), ensuring that they operate in a safe and secure manner.

There are still numerous building societies in operation in the UK, and they continue to be a major part of the country’s financial sector.

How do Building Societies differ from Banks?

Building societies differ from banks in a number of ways:

While banks are usually owned by shareholders who may or may not be customers of the bank, building societies are mutual institutions, which means they’re owned by their members (the people who have accounts with them).

Because banks are owned by shareholders, their primary objective is often to maximise profits for those shareholders. Building societies, however, do not distribute profits to external shareholders. Instead, they use profits for the benefits of their members, often in the form of more competitive interest rates, lower fees, or improved services.

Building societies traditionally have a stronger focus on residential mortgages and savings accounts, although many also offer a range of other services. Banks, on the other hand, typically offer a wider range of products and services, which might include credit cards, insurance, commercial lending, and investment services.

It’s important to note that while these are general characteristics, there can be variations among individual institutions. Some building societies have ‘demutualised’ over time, transforming into banks and losing their mutual status.