What’s the Difference Between Banks and Building Societies
Money matters have always been a critical aspect in our day to day lives. That’s why usually when we have ideas on ways in which to get monetary resources, we always have research on the best institutions. Banks are more traditional than building societies since banks have been there since time immemorial. However, building societies are a new craze and still offer the same financial services more or less as much as they are as old as traditional banking systems.
Before the 1980s there was a significant difference between banks and building societies.
Then, banks were not allowed to offer mortgages and banking societies were not authorised to provide banking product like current accounts. They also had a chance to evolve into banks just as long as their members agreed to it. However, the government changed all these features later on in the ’80s. This means that before the 1980s there was a vast difference between the two financial institutions.
Let me enlighten you a bit on the similarities between the two financial institutions.
1.Banks are owned by stakeholders however building societies are not
Banks as financial institutions are listed on the stock market. This is because they are governed and managed by shareholders. On the other hand, the building societies were formed for communities. Their main aim was to assist communities in personal development as a channel for the common man to access and save money. The members of the cities, the members, make decisions about the running of the institution.
- Bank offer lower saving rates.
Just like any other financial institution, building societies are also affected by interest cuts. However, unlike banks, they are not obligated to paying dividends to its members. This makes them more flexible regarding offering better interest rates in mortgage deals or savings accounts to its members. This means that they are more attractive institutions as compared to traditional banks to the society.
- Building societies operate in a less competitive market
As attractive as building societies are, they do not give room for intense competitiveness as banks do. Most of the societal perception is that the building societies are dependent on customer deposits. However, that is not entirely true.
True, there are stringent restrictions on the total amount the building societies raise. They are only allowed to raise fifty per cent in the wholesale money market share. Unlike their bank competitors, they are not interested in funding themselves through these systems since they can rely on their customers.
All in all, both financial institutions have benefits to the community. They are ways in which the city can access financial help. However, banking societies seem more lucrative since they are customer friendly due to the reduced traditional banking systems. More so, they lack high-interest rates in their borrowing plans thus being a better option for people. The downside is that they are not as popular as banks hence people have misunderstood how they run and how they can benefit from these institutions.