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What is the difference between a bank and a building society?

Banks
Banks are companies. They are usually listed on the stock market. This means that people and organisations can buy shares in banks. The shareholders own the banks but they don’t necessarily have accounts with them or use any of the other services that banks offer. Instead, the shares they have in banks are an investment. If the bank is successful financially, they will benefit from this success because the bank will pay them a dividend, which is a share of the earnings made by the company. So there is pressure on banks – and all other listed companies - to make money for their shareholders. If they don’t, their shareholders are likely to invest their money elsewhere.

Building societies
Building societies don’t have shareholders so they aren’t under the same pressure to make lots of money to pass on to them. Instead, building societies are mutual institutions. This means that most of the people who use their services are members of the building society who can vote on decisions that affect the society.

Building societies were first formed in the 18th century to help people save up to buy land so that they could build their own houses. They also lent money to people to help them buy their land sooner.  Later they began to accept savings deposits from people who did not necessarily want to buy houses. 

This all changed in the 1980s when the Government made some changes. It allowed banks to start lending mortgages and building societies to offer banking services.  Building societies were also able to demutualise if their members agreed, which meant they could change from building societies to banks. Many chose to do this and a number of the banks on our high streets today started off life as building societies.

 

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