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Difference between Bank and Building Society

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It is critical to grasp the distinction between banks and building societies in today’s financial market. While both institutions provide financial services, they have distinct characteristics that set them apart. This article aims to shed light on these differences between Bank and Building Society, helping readers make informed decisions when choosing their financial partners.

Banks and building societies play vital roles in the economy by offering various financial products and services to individuals and businesses. While their core functions might seem similar at first glance, they differ in ownership, structure, products, and customer focus. It’s essential to grasp these disparities to leverage the benefits each institution provides.

Definition and Purpose

Banks are profit-driven financial institutions that accept deposits, facilitate loans, and provide a broad range of financial services. They serve individuals, businesses, and corporations, offering services such as current accounts, savings accounts, credit cards, and loans. On the other hand, building societies are mutual organizations focused on mortgage lending and savings products. They aim to help members achieve homeownership and provide competitive mortgage rates.

Ownership and Structure

One of the primary distinctions between banks and building societies lies in their ownership and structure. Banks are typically owned by shareholders and governed by a board of directors and executives. They strive to generate profits for their shareholders by offering financial services to a wide customer base. In contrast, building societies operate on a mutual model, meaning they are owned by their members. Members have a say in decision-making processes and elect committees to represent their interests.

Products and Services

Banks and building societies offer different sets of products and services tailored to their target markets. Banks provide a comprehensive range of financial products, including current accounts, savings accounts, loans, credit cards, investment services, and insurance. Building societies, while also offering savings accounts, specializing in mortgage lending, and focusing on helping members achieve homeownership. They often provide attractive mortgage rates and flexible repayment options.

Profitability and Dividends

Profitability is a key differentiating factor between banks and building societies. Banks operate with the primary goal of maximizing shareholder returns. Their profits are distributed among shareholders in the form of dividends. In contrast, building societies are not profit-driven institutions. Instead, they distribute surplus funds back to members in the form of bonuses or reduced mortgage rates, providing tangible benefits to their members.

Regulation and Governance

Both banks and building societies are subject to regulatory oversight, but the regulatory bodies and governance structures differ. Banks are regulated by financial regulatory authorities such as the Federal Reserve, the Financial Conduct Authority, and the Prudential Regulation Authority. Building societies are also regulated by the FCA and the PRA, ensuring their compliance with financial regulations. Additionally, building societies have elected committees to represent members’ interests and ensure transparency.

Access and Branch Networks

Banks typically have a more extensive branch network and ATM presence compared to building societies. They strive to provide convenient access to their services across a wide geographical area. Building societies, while also offering branch services, usually have a more regional focus, with a smaller branch network. However, advancements in digital banking have enabled both banks and building societies to provide online services and mobile banking applications.

Customer Focus and Membership

Banks cater to a broad customer base, serving individuals, small businesses, corporations, and institutions. They seek to suit their clients’ different demands by providing a comprehensive variety of financial products and services.  Building societies, being member-owned institutions, focus on serving the interests of their members. Their primary goal is to provide mortgage services and savings products that benefit their members and local communities.

Financial Stability and Safety

Financial stability and safety are crucial considerations when choosing a financial institution. Banks, given their larger size and diversified operations, are often perceived as more stable. However, building societies offer a different kind of security. They participate in deposit protection schemes, ensuring that members’ savings are safeguarded. Moreover, building societies generally follow conservative lending practices, reducing the risk of financial instability.

Flexibility and Personalized Service

Banks typically offer more flexibility in terms of financial products and services. They cater to a wide range of customer needs and preferences, providing options for various financial goals. Building societies, while not as versatile as banks, are known for their personalized service. They often prioritize building strong relationships with members, understanding their unique circumstances, and providing tailored solutions.

Technology and Digital Banking

Banking services are heavily reliant on technology. Banks have invested heavily in digital banking platforms and technological advancements. They offer sophisticated online banking systems, mobile apps, and digital wallets to enhance customer convenience. Building societies have also adapted to the digital era but often maintain a more personalized touch, ensuring that their members receive individualized attention.

Competition and Market Share

Banks dominate the market share in the financial industry, with large national and international institutions serving millions of customers. Their enormous reach and resources enable them to provide a diverse range of products and services. Building societies, while holding a smaller market share, have a loyal customer base. Many customers appreciate the community-oriented approach of building societies and choose them for their mortgage needs.

Reputation and Public Perception

Banks and building societies often differ in terms of reputation and public perception. Banks, due to high-profile scandals and controversies in the past, have faced public scrutiny. However, many banks have made efforts to regain trust through improved transparency and accountability. Building societies, on the other hand, are often seen as more trustworthy and community-focused institutions. Their emphasis on member benefits and local engagement contributes to a positive reputation.

Advantage of Bank

  • Wide range of financial products and services
  • Greater flexibility and convenience
  • Advanced technology and digital banking capabilities
  • Large branch network and ATM accessibility
  • Strong financial stability

Disadvantage of Banks

  • Profit-driven nature may lead to less personalized service
  • Perception of being less community-oriented
  • Potential for high fees and charges

Advantages of Building Societies

  • Building societies often offer competitive mortgage rates and prioritize member-centric customer service.
  • They actively engage with the community and make investments that contribute to local development.
  • Building societies operate on a shared ownership model, giving members a voice in decision-making processes.
  • Compared to banks, building societies often have lower fees and charges, resulting in potential cost savings for customers.
  • They are known for their trustworthiness, transparency, and focus on savings with attractive interest rates.
  • Building societies typically maintain financial stability through responsible lending practices.
  • Member-focused approach with personalized service
  • Competitive mortgage rates and favorable savings products

Disadvantage of Building Societies

  • Limited product offerings compared to banks
  • Smaller branch network and potentially less accessibility
  • Less extensive technological advancements

Conclusion: Difference between Bank and Building Society

Understanding the difference between banks and building societies is crucial when choosing a financial institution. While both offer financial services, they differ in ownership, structure, products, customer focus, and approach. Banks cater to a broad customer base, providing comprehensive services with greater flexibility. Building societies, as mutual organizations, focus on mortgage lending and member benefits with a personalized touch. Assessing individual needs and preferences will help determine the best fit for financial goals and preferences.

FAQs 

Are building societies the same as credit unions?

Building societies and credit unions are both member-owned financial institutions. Building societies primarily focus on mortgage lending and savings products, while credit unions offer a broader range of financial services.

Can I have a mortgage with a bank instead of a building society?

Banks offer mortgage services alongside their other financial products. Choosing between a bank and a building society for a mortgage depends on factors such as rates, terms, and personal preferences.

Do building societies offer online banking services?

Many building societies have embraced digital banking and offer online banking services. Building societies provide online access to account information, transfers, and other banking functionalities.

Are building societies safer than banks?

Both banks and building societies are subject to regulatory oversight and have measures for financial stability. Building societies participate in deposit protection schemes, offering safeguards for members’ savings.

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