Building society

Building society is a type of financial institution that is owned by its members. These institutions offer banking and related financial services, especially savings accounts and mortgage lending. Building societies exist in the United Kingdom and several other countries.

History

The first building society was established in the United Kingdom in the 18th century. The concept was introduced as a cooperative movement to help members of the society to buy their own homes. The members would contribute a certain amount of money into a common pool on a regular basis, and the accumulated funds would be used to build houses. This concept was later adopted by other countries, including Australia, New Zealand, and Canada.

Structure and operation

Building societies are mutual organizations, meaning they are owned by their members rather than by shareholders. This structure is intended to align the interests of the society with those of its members. The members of a building society are both the customers and the owners of the society, and they have the right to vote on important issues, such as the election of the board of directors.

Building societies offer a range of financial services, including savings accounts, mortgages, and insurance. They are regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom.

Comparison with banks

Building societies are similar to banks in many ways, but there are also key differences. Unlike banks, building societies are not profit-driven. They are designed to serve the interests of their members, and any profits are typically reinvested in the society or distributed to members in the form of lower interest rates on loans or higher interest rates on savings.

Another key difference is that building societies are less likely to engage in risky financial activities than banks. This is because they are not under pressure to generate profits for shareholders.

Challenges and criticisms

Building societies have faced challenges in recent years due to increased competition from banks and other financial institutions. Some critics argue that building societies are outdated and unable to compete with modern banks.

However, supporters of building societies argue that they provide a valuable service by focusing on the needs of their members rather than on generating profits. They also argue that building societies are more stable and less risky than banks.

See also

• Credit union
• Mutual savings bank
• Cooperative banking