What is a building society?

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A building society is a financial organisation which is run by its members. They offer a range of financial products, including savings accounts and mortgages. As the benefit of their members is their primary goal, all the money that a building society makes is reinvested in the business, helping and allowing them to offer more loans and also better interest rates.

A building society is a financial organisation. They are commonly found in the UK but also in Ireland, Australia and New Zealand. Building societies are owned by their members and offer similar services as banks. For example, they also focus on savings or lending money for mortgages and loans. Every borrower or saver is, however, not a customer but a member. This means that unlike banks, building societies focus on serving the interests of their members instead of mainly aiming to make a profit. Building societies in the UK are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), ensuring they operate within strict guidelines.

Here’s a brief historical background and the evolution of building societies in the UK:

• Origins: In 1775, the first building society was set up in Birmingham. Back in the 18th century, banking and financial services were only available for wealthy citizens. As a result, it was especially hard for the working class to buy land or build their own houses. Consequently, a new idea emerged and the first so-called terminating societies were founded to help and support their members find and own housing.
• Permanent Societies (1840s): Only 50 years later, in 1845, more than 250 societies were established across the UK. In that same year, the Metropolitan Equitable was formed, becoming the first permanent society. This meant they continued operating indefinitely, offering savings and loans to a wider group.
• Industrial Revolution Boost: The rapid urbanisation and population growth during the Industrial Revolution increased the demand for housing, spurring the growth of building societies throughout the 19th century.
• Regulation in the 19th Century: In 1869, the Building Society Protection Association was established in London. Its purpose was to protect the interest of these societies. The Building Societies Act provided them with the ability to give housing and banking services to their members. It was passed into law in 1986.
• Present Day: Today, building societies continue to operate, though fewer in numbers, still offering competitive mortgages and savings products with a focus on member benefits, rather than shareholder profits.

In short, when a member saves money with a building society, they are given interest on the amount they save. This money is then used by the building society to provide mortgages for borrowers, who are charged interest for the money lent to them. Because it’s member-owned, any profits are reinvested to benefit members, such as offering better interest rates. What is a building society account? They mainly offer savings accounts, however, some building societies offer a wider range including current accounts and credit cards.

Back in 1910, there were 1,723 building societies. Today, there are only 43 building societies left, according to the Building Society Association (BSA). Some building societies, including big names like Halifax and Abbey National, converted into banks in the 1980s and 1990s, a process known as demutualisation, in order to raise capital and compete with commercial banks.

The biggest building society in the UK, and also in the world, is Nationwide, formerly known as the Provident Union Building Society – founded in 1846. The top three largest building societies in the UK in 2023 were:

1. Nationwide Building Society – The largest in the UK and globally, with assets of around £280 billion and over 16 million members.
2. Yorkshire Building Society – The second largest, with assets of approximately £56.4 billion and over 2.5 million members.
3. Coventry Building Society – The third largest, managing assets of £55.6 billion and nearly 2 million members.

Raisin UK now offers accounts with three reputable building societies: Furness Building Society, providing fixed rate bonds; Teachers Building Society, offering both notice and easy access accounts; and Melton Building Society, currently offering 45-day and 14-day notice accounts. These partnerships allow Raisin UK customers to benefit from a wider range of savings options tailored to different financial needs.

Building societies are regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). Consequently, a building society as an organisation must meet certain standards and follow specific rules to make sure that their members are treated fairly, and their money is safe. Additionally, any savings you have with a building society in the UK are also protected by the Financial Services Compensation Scheme (FSCS). This means that up to £85,000 of your money is protected should the building society go bankrupt.

The main difference between banks and building societies is that the latter are owned and run by their members, and each member has a vote. Banks are owned by their shareholders, as they are usually traded on the stock market. Simply put, banks are run for profit and the benefit of their shareholders, while building societies are run for the benefit of their members. In addition, many building societies are strongly connected with their local or regional community. Banks, however, typically operate on a national or even global scale.

Banks and building societies also share some similarities. Both offer a range of financial services and products such as deposit accounts, loans, and mortgages. They are also equally regulated by the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA).

In comparison to banks, building societies have some advantages:

• Interest rates: Building societies often offer better interest rates than banks, as they don’t need to pay dividends to shareholders.
• Borrower’s background: A building society is more likely to lend money to members that are usually considered high risk by banks. If you’re older or maybe self-employed, you still have a good chance of getting a loan with a building society.
• Members not customers: As a member of a building society, you have a say in how the society is run. For example, you can vote on decisions and elect directors.

There are a couple of disadvantages of building societies in some areas:

• Services: Building societies don’t offer as many services as banks. They usually specialise in savings and mortgages. Banks have a wider range of products and services.
• Restrictions: Some products come with restrictions in a building society. For example, for some savings accounts you may need to visit a certain branch to be able to open them, or some mortgages are only available if you live in a specific region.
• Convenience: Many building societies only have branches in certain areas. This means they might not be near you, which makes it more difficult or even impossible to open accounts with a building society.

While you now know what a building society is, it’s equally worth checking you’re getting the most from your savings. At Raisin UK, you can currently take advantage of competitive rates on fixed rate bonds. It’s easy to get started. Simply register for a free Raisin UK Account, apply to open a savings account, and deposit your funds.