There are more ways to bank and invest your money than ever before. However, that means things can often get a little bit confusing. For the longest time, before the internet came along and made things even more complex, people in the UK have been able to choose between banks and building societies when it comes to putting their money away for safe keeping.
Which is the better choice for you to use when it comes to safeguarding or saving your cash? In this guide, we will take a closer look at what you can expect should you choose either option.
Differences Between Banks and Building Societies
Banks are generally listed on the stockmarket and have external shareholders whereas building societies have members and no external shareholders. Banks also usually offer a wider range of products compared to building societies.
The difference between a bank and a building society is easy to explain on paper. Essentially, a building society has no shareholders on the outside. Banks, however, have a presence on the stock market, and can, therefore, be bought into by external shareholders.
Building Societies Have ‘Members’
This, too, can affect the way that either financial institution is run. While shareholders for banks will obviously possess small chunks of the brand, building society members will have a larger say in what happens to the institution.
In fact, building society customers are more likely to be called ‘members’. What’s more, this different approach to member and customer interaction often means better rates of interest for anyone looking to apply for a mortgage.
Banks Usually Offer a Wider Range of Financial Products
However, while building societies do still exist to some extent, banks are more prevalent. This is largely thanks to the fact that banks were given more leeway in terms of the financial products they could provide. Banks have only in recent decades been allowed to offer mortgages, for example. Building societies, too, weren’t always able to support current accounts.
When You Should Use a Building Society
While there may be more benefits to running an account with a bank, there are still plenty of hidden perks concerning building society memberships.
For one thing, you get a greater say in how the institution is run. As a member, you will be regarded as a valuable part of the overall brand or society. Think of it as rather like a private club of sorts.
This, ultimately, allows you to sample better interest rates on your savings. In a day and age where many people are struggling to save at all, any income boosts are seen as wins. What’s more, many people may prefer to head to building societies as they are more in tune with loans, mortgages and ISAs.
A building society is a genuinely viable choice for anyone interested in protecting their money. However, thinking of a society being more ‘secure’ than a bank is a myth. These days, most institutions offer the same products and the same support. The major difference between banks and building societies lies in how they are structured.
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When You Should Use a Bank
That being said, there are a few reasons why a bank account may be more preferable to some customers. Building societies are largely limited on a regional scale. This gives them the sense of community that they are known for. As such, many modern savers may see this as something of a restriction.
Some building societies have opened themselves up to a world where money is being spent and saved flexibly and fluidly. However, it is worth remembering that banks offer a more global approach. There are no perceived boundaries or restrictions when using a bank. The trade-off being, of course, that you don’t get this community spirit or ownership perks you’d receive at a building society.
Banks may also offer a wider range of products and services, like foreign currency accounts for example. As they are owned by private shareholders and are therefore always expanding, it is likely that the big names in banking will continue to develop and grow. For anyone interested in taking advantage of enhanced products or services, a bank account is probably going to be the best possible choice.
How To Decide On The Most Suitable Option
There are a few further points we need to think about before we draw this guide to a close. When thinking about the differences between building societies and banks, we need to think about what they aim to do.
Building societies are set up as local institutions, ones who physically hold money, and are therefore depended on by the community. They are driven by their customers or members, and not by profits. Banks, however, as private institutions, are driven by profit. External shareholders and stock market listings mean that these institutions are in the business of being profitable.
While neither ethos is particularly bad, you may have already made a decision based on the above statement. Banks tend to offer greater flexibility when it comes to products and global finance. Building societies, while close-knit and with higher interest rates, may not be seen as so flexible by the wider public.
The idea of either a bank or a building society being safer than the other isn’t up for debate. All UK institutions are set up and regulated to ensure their customers’ funds are protected. However, some people may feel safer using one option or the other. Some discussions have opened up over whether or not the building society/bank debate is a matter of generational divide. While younger people might see building societies as beneficial in the long run, are they as flexible or as modern as they need them to be?
If you’re worried about the difference between banks and building societies, don’t be. Ultimately, your decision should be based on which products appeal to you the most. Are you interested in claiming a high-interest rate on savings? Do you prefer flexibility when it comes to everyday banking?
The bottom line is to never discount building societies. Both societies and banks offer a wide range of products well worth looking into. Have you had any experience that makes you prefer one over the other?