What are building societies?

In the world of finance, building societies play a vital role, particularly in the United Kingdom. While often mentioned alongside banks, they serve distinct purposes and offer unique services to their members. In this article, we will look at what building societies are, how they differ from banks, and why they remain relevant in 2024.

A building society is a type of financial institution that primarily serves its members by providing savings and mortgage services. Historically, building societies originated as community-based organisations, founded by groups of individuals pooling their savings to assist each other in purchasing homes. These societies were established with the principal objective of promoting homeownership among their members.

Today, building societies continue to operate on a ‘mutual’ basis, meaning they are owned by their members rather than by external shareholders. This ownership structure distinguishes them from banks, where profits are typically distributed among shareholders. Instead, building society profits are often reinvested to benefit members, such as through competitive interest rates on savings accounts and favourable mortgage terms.

While both building societies and banks offer financial services, there are several key differences that set them apart:

• Ownership structure: As mentioned, building societies are owned by their members, who have voting rights and a say in the institution's operations. Banks, on the other hand, are typically owned by shareholders, with decisions made to maximise profits for those shareholders.
• Focus on members: Building societies tend to prioritise the needs of their members, often offering personalised services and tailored financial products. Banks, as for-profit entities, tend to prioritise maximising returns for shareholders.
• Profit distribution: Building societies often reinvest profits to benefit their members, such as by offering competitive interest rates on savings accounts or maintaining lower mortgage rates. Banks distribute profits to shareholders in the form of dividends.
• Size and scope: While some building societies may operate on a national scale, many remain regionally focused, serving specific communities or areas. Banks, by contrast, can range from local institutions to multinational corporations with a broad range of services beyond savings and mortgages, including investment banking, asset management, and international transactions.
• Regulation: Both building societies and banks are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in the UK. However, building societies may be subject to additional regulations specific to their mutual structure.

The best building society interest rates will vary at any given time, and will depend on a number of factors. You may also find that some building societies have small catchment areas, so you wouldn’t be able to open a savings account with them if you lived outside of that area.

No, as mentioned above, banks and building societies are both regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) in the UK. Your money will be protected up to regulatory limits in both a bank or building society, providing they are regulated.

Some of the most well-known high street building societies include:

• Nationwide Building Society
• Coventry Building Society
• Yorkshire Building Society
• Skipton Building Society
• Leeds Building Society