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What Is the Difference Between Banks and Building Societies?

Written by, Marija Petkova

Updated September, 16, 2022

What is the difference between banks and building societies? 

Building societies and banks are two main types of financial institutions that you can find in the UK banking world. The main difference between building societies vs banks is that building socities are owned and run by their members.

But, what do they specialise in and which one is better for your needs? 

Let’s find out.

What is a Bank?

A bank is a financial institution that offers a variety of banking services to members of the public, such as accepting checking and saving deposits and making loans.

More importantly, banks are for-profit businesses listed on the stock market and are owned by shareholders. 

There are several types of banks in the UK and all are regulated by the Financial Conduct Authority (FCA) and by the Prudential Regulation Authority (PRA).

You might be interested in: Is a bank transfer safe in the UK?

What is a Building Society?

A building society is a financial institution that offers many of the same services as a bank (and is FCA- and PRA-regulated) but with an emphasis on savings accounts and lending money for mortgages or loans.

Unlike banks, building societies are not listed on the stock exchange since they are not-for-profit organisations and are owned by their members (who use their services), each of whom gets a vote.

Main Differences Between Bank vs Building Society

The main building society and bank difference is how they are structured and what services they offer.

Banks are externally owned by shareholders

Banks are owned by external shareholders and as such, these institutions are driven by profit and make their decision to benefit the shareholders (who receive payments from the profits that these banks generate, called dividends).

Building societies are owned by its ‘members’

The major difference between a bank and a building society is that building societies are owned by their members. These members often have mortgages or savings accounts or use services that a building society offers. 

As mutually owned organisations (often referred to as a ‘Mutual Society’), building societies mainly focus on keeping its members (read: customers) happy rather than outside shareholders. 

Banks offer a wider range of financial products

Up until the 80s, there was a clear difference between banks and a building society as banks were not allowed to offer mortgages– anyone looking for a mortgage could find one at a building society rather than a bank. The government’s decision to allow banks to offer mortgages blurred the lines between the two financial institutions. 

The shift also expanded the bank’s lead over building societies in terms of the number of services and products they offer, like debit cards you can use abroad and sending money overseas.

When Should You Use a Bank?

Although building societies rate much higher on the customer satisfaction scale, compared to banks, banks are still more popular due to their global range.

Most building societies are only available at a regional level and given that 76% of UK citizens used online banking in 2020, the lack of reach is a deal breaker for many.

Banks don’t typically come with a lot of limitations due to being privately owned and ever-expanding businesses.

Granted, there’s no feeling of mutual ownership as in a building society, but you can expect to make use of a larger number of products and services than building societies.

If you’re on the search for global reach and convenient financial products, then banks are the obvious choice.

You may be interested in: Top 10 banks in the UK.

Banks vs Building Society: Pros and Cons of Banks

Pros of BanksCons of Banks
Wider variety of products and servicesLower interest rates on savings
Global reachLower personal service

When Should You Use a Building Society?

Although banks seem to offer many more perks, building societies have their own advantages that make them a better option for certain people.

The main difference between a bank and building society is that in a building society you get more say in how the organisation is run, which is an important factor to consider.

Unlike with banks, building societies’ focus is its members rather than making profits, which can be financially beneficial, provided that it has the products you’re looking for. 

Since profit is not on the top of the list of priorities for building societies, they often provide much better interest rates on savings and are much more likely to offer its products, like ISAs, mortgages, and loans, to people who have adverse credit.

Pros and Cons of Building Society vs Bank

Pros of Building SocietiesCons of Building Societies
Better interest ratesFewer products available 
More likely to lend to ‘riskier’ borrowersMost building societies don’t offer Current Accounts
Members’ interest at heartRegional

Bottom Line

Understanding the difference between a bank and building society in the UK, including their benefits and drawbacks, makes it a bit easier to decide which one is right for you. If you prefer mutually organised financial institutions whose main focus is its members, then building societies are the right way to go. Banks, on the other hand, are an ideal choice for those looking for access to a variety of financial services on a larger scale.

Frequently Asked Questions And Their Answers

Which is safer bank or building society?

Both banks and building societies in the UK are regulated by the Financial Conduct Authority (FCA), meaning that they are equally safe. Under FSCS, members of banks and building societies are eligible to claim up to £85,000 if the institution becomes insolvent.

Is it better to get a mortgage with a bank or building society?

When it comes to a ​​bank or building society mortgage, building societies are often the better choice because they specialise in providing financial products of that calibre. According to The Times, building societies such as Coventry, Principality, and Yorkshire are one of the top mortgage lenders due to the affordable interest rates and flexibility they offer, compared to banks.

Why choose a bank over a building society?

The main advantage a bank has over a building society is that it has a global reach and offers a wider range of financial products. 

What is the difference between banks and building societies?

The biggest difference between a bank and a building society is that banks are owned and run by external shareholders, while building societies are run and controlled by their members. Banks offer more products, but building societies often have better offers when it comes to savings accounts and loans.

My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.