Walk down any UK high street and you’ll easily be able to identify all of the banks; every town has at least a couple of them, and for the most part they appear to be pretty much the same. Some of them however, may actually be building societies. The clue will be in the name for a lot of them, but it’s not so obvious for the rest. The question is, are these building societies just the same as the banks that they look like?
The answer is unequivocally no. While both are financial institutions designed to allow people to manage their money in numerous different aspects, the two are fundamentally different because of their purpose.
The purpose of a bank is ultimately to deliver financial success to its shareholders. While good customer service and helping consumers do well in life through offering mortgages and business loans may come with this, the end goal is always to make a profit that can be passed onto those who hold stock in the company.
A building society on the other hand is a mutual institution of members who hold accounts. There are no shareholders, and there isn’t the same pressure to turn a profit. Every account holder, no matter how much money they have in their account, has the right to vote, which means that the society is run by its members.
So, What Does This All Mean?
In theory, there are two primary benefits of a building society. The first is that because there is less pressure to make a large profit, the cost of products, whether small loans or mortgages, is generally cheaper. The second is that because the society is run by those who hold accounts, it should have their best interests at heart. This can be demonstrated by the fact that building societies generally receive far fewer complaints than other institutions like banks. Some like Saffron Building Society can even offer independent financial advice.
Your takeaway then is that if you’re looking for a financial product like a savings account or mortgage, then take a look at a building society when you’re making your decision. You’ll still always need a bank for a current account, but it may well be better to be part of a society that you have a say in when it comes to everything else.