In the UK, a building society is a financial institution that is owned by its members, who are either savers or borrowers.
Building societies offer a range of financial services, much like banks, but they traditionally focus on offering savings accounts and providing mortgages to their members.
The mutual ownership structure means that, unlike banks, which aim to maximize profits for external shareholders, building societies operate with the goal of benefiting their members, often resulting in more favourable interest rates and lower fees.
Key Characteristics of Building Societies:
- Member-Owned: Building societies are mutual organizations, meaning they are owned and run for the benefit of their members. There are no external shareholders to pay, allowing any profits to be returned to members through better rates and services.
- Focus on Mortgages and Savings: The primary purpose of a building society is to take savings from its members and lend these funds out as mortgages, helping members buy their own homes.
- Financial Services: Besides savings and mortgages, many building societies now offer a broader range of products similar to banks, including current accounts, personal loans, and insurance products.
- Regulation: Building societies in the UK are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), ensuring they adhere to strict financial and operational standards.
- Community Orientation: Many building societies maintain a strong local presence and community focus, supporting local initiatives and providing a more personalized customer service experience.
Historical Context:
Building societies have a long history in the UK, with the first societies emerging in the late 18th century. They were initially established as co-operative groups that members could join to save money collectively and loan funds to each other for the purpose of purchasing homes.
Over the years, building societies have evolved, with some converting into banks, but many remain committed to their mutual, member-focused ethos.
Advantages for Members:
- Competitive Rates: Often offer more competitive interest rates on savings accounts and mortgages due to the mutual model.
- Customer Service: Typically, building societies are known for providing high levels of customer service with a focus on member satisfaction.
- Community Focus: Many building societies contribute to local communities through sponsorships, charity events, and other local initiatives.
Modern Building Societies:
Today’s building societies range from large organizations offering a wide array of financial products across the UK to smaller, local societies focused on serving the needs of their local communities.
Despite the diversification of their services, the core principle of operating in the best interest of their members remains central to the ethos of building societies.
What are the biggest building societies in the UK?
Here are some of the biggest building societies in the UK based on total assets:
- Nationwide Building Society: Nationwide is the largest building society in the UK and one of the largest savings providers and mortgage lenders in the country. It offers a wide range of financial products and services, including current accounts, mortgages, savings, personal loans, and insurance products.
- Coventry Building Society: As one of the leading building societies, Coventry offers competitive mortgage and savings products and is known for its customer service.
- Yorkshire Building Society: Yorkshire is another major player, providing a variety of financial products such as savings accounts, mortgages, and insurance, catering to a broad customer base.
- Skipton Building Society: Skipton offers a range of financial services, including mortgages and savings, with a focus on helping people secure their own homes and save for the future.
- Leeds Building Society: Leeds is known for its variety of mortgage products and savings options, serving members across the UK.
What services do building societies offer to businesses in the UK?
Building societies in the UK have traditionally focused on serving individual savers and borrowers, particularly in the areas of savings accounts and residential mortgages.
However, many have expanded their offerings to cater to the needs of businesses, especially small and medium-sized enterprises (SMEs). The range of services offered to businesses by building societies can vary, depending on the size and scope of the society.
Here are some common services building societies may offer to businesses in the UK:
1. Business Savings Accounts
- Purpose: To help businesses earn interest on their surplus cash.
- Features: Competitive interest rates, easy access to funds, or fixed-term options for better interest rates.
2. Business Loans and Mortgages
- Purpose: Providing financing options for businesses to purchase property, expand operations, or invest in equipment.
- Features: Tailored loans and mortgage products designed to meet the specific needs of businesses, with various interest rate options and repayment terms.
3. Commercial Mortgages
- Purpose: For the purchase of commercial property or refinancing existing properties.
- Features: Mortgages are tailored to the business’s needs, with variable terms and rates based on the loan amount and property type.
4. Cash Management Services
- Purpose: To assist businesses in efficiently managing their daily cash flow and transactions.
- Features: Services may include online banking, night safe facilities, and faster payments services.
5. Current Accounts
- Purpose: To manage daily financial transactions.
- Features: While less common, some building societies offer business current accounts with features like overdraft facilities, debit cards, and online banking.
6. Merchant Services
- Purpose: To enable businesses to accept card payments from customers.
- Features: Some building societies may partner with payment processors to offer card payment terminals and online payment solutions.
7. Asset Finance
- Purpose: To fund the purchase of equipment or vehicles needed for the business to operate.
- Features: Leasing or hire purchase arrangements that allow businesses to spread the cost of expensive assets over time.
8. Invoice Financing
- Purpose: To improve cash flow by borrowing against the value of outstanding invoices.
- Features: Although more commonly provided by banks and specialist lenders, some building societies may offer or refer invoice financing services.
It’s important to note that not all building societies offer a full range of business banking services, and the availability of these services can vary significantly from one society to another.
Banks vs Building Societies: What are the differences for UK Businesses
In the UK, both banks and building societies offer financial services, but they operate under different business models and principles. For UK businesses, understanding the differences between banks and building societies can be crucial when making decisions regarding financing, banking, and savings. Here’s a breakdown of the key differences:
Ownership and Structure
- Banks: Banks are usually publicly traded companies owned by shareholders. The primary aim of banks is to maximize profits for their shareholders. They offer a wide range of financial services, including business banking, loans, and savings accounts, to both individuals and businesses.
- Building Societies: Building societies are mutual organizations, which means they are owned by their members (savers and borrowers) rather than external shareholders. The focus of building societies is more on serving the best interests of their members rather than maximizing profits. Traditionally, building societies were focused on providing mortgages and savings accounts, but many now offer a broader range of products similar to banks.
Products and Services
- Banks: Offer a comprehensive suite of financial products and services, including business loans, overdrafts, credit facilities, savings and investment products, checking accounts, and financial advice for businesses of all sizes.
- Building Societies: While originally focused on savings and mortgages, many building societies have expanded their offerings to include current accounts, business loans, and other financial services. However, their range of products may be more limited compared to banks.
Interest Rates and Fees
- Banks: Competitive interest rates for loans and savings, but rates and fees are often influenced by the need to generate profits for shareholders.
- Building Societies: Potentially offer more favourable interest rates on savings accounts and loans, as they aim to benefit their members. Fees might also be lower for certain services.
Customer Service
- Banks: The level of customer service can vary widely from one bank to another. Large banks may offer more digital services and convenience but might lack personalized service.
- Building Societies: Often praised for their customer service and community focus. Being member-owned, they may provide a more personalized banking experience, particularly for individuals and small businesses.
Focus and Community Involvement
- Banks: May be more commercially focused, with decisions often driven by profit considerations.
- Building Societies: Tend to have a strong community involvement and may be more inclined to make decisions that favor the interests of their members, including businesses within their local areas.
Regulatory Environment
Both banks and building societies in the UK are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), ensuring they adhere to specific standards of conduct and maintain financial stability.
However, the specific operational focus and ownership structure of building societies allow them to offer a distinctive proposition to their members.
For UK businesses, the choice between using a bank or a building society will depend on various factors, including the nature of the financial services needed, the importance of customer service, and the preference for a community-oriented provider.
While banks offer a wide range of services with potentially more technological advancements, building societies may offer a more personalized service with potentially better rates and lower fees due to their mutual structure.