Building Society

A financial institution traditionally engaged in accepting deposits and making loans for house purchases or improvements, predominantly found in the UK, Australia, South Africa, Ireland, and New Zealand.
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What is a Building Society?

A building society is a financial institution that primarily focuses on providing savings and mortgage lending services to its members. Originating from the Friendly Society movement in the late 17th century, these societies have typically operated on a mutual basis, meaning they are owned by their members rather than external shareholders. This mutual status allowed them to operate as non-profit-making entities.

Key Features of Building Societies

  • Accepting Deposits: Similar to commercial banks, building societies accept deposits from members, on which they pay interest.
  • Mortgage Lending: They offer loans secured by mortgages for house purchases and improvements.
  • Mutual Ownership: Traditionally non-profit-making and owned by members.
  • Range of Services: Post the Building Societies Act 1986 in the UK, they now offer a wide range of services including cheque accounts, credit cards, cash cards, loans, money transmission, foreign exchange, and valuation and conveyancing services.

Examples of Building Societies

  1. Nationwide Building Society (UK): The largest building society in the world, providing a range of financial services.
  2. Yorkshire Building Society (UK): Offers mortgages, savings, insurance, and financial planning.
  3. Permanent TSB (Ireland): Offers mortgages, savings, and a wide range of financial services.

Frequently Asked Questions (FAQs)

Q1: What is the difference between a building society and a commercial bank?

A1: Traditionally, a building society primarily focuses on savings and mortgage lending and operates on a mutual ownership basis, whereas a commercial bank provides a wider range of financial services and is owned by its shareholders. However, the distinction has blurred over time with many building societies offering similar services to banks.

Q2: How does mutual status benefit building society members?

A2: Mutual status often means that profits are reinvested into the society or used to offer better rates and services to members, rather than being distributed to external shareholders as dividends.

Q3: Can building societies offer the same services as banks?

A3: Yes, especially after legislative changes such as the Building Societies Act 1986 in the UK, building societies can offer numerous financial services similar to those provided by banks.

  • Mortgage: A loan secured by the collateral of specified real estate property.
  • Friendly Society: A mutual association for the purpose of providing insurance or financial assistance.
  • Public Limited Company (PLC): A company that offers its securities for sale to the general public with shareholders.
  • Savings and Loan Association: US-based financial institutions that accept savings deposits and provide mortgage and other loans.
  • Financial Conduct Authority (FCA): A regulatory body overseeing financial markets and services in the UK.

Online References

Suggested Books for Further Studies

  1. “Building Societies in the Commercial World” by Peter Hopkinson
  2. “Understanding Financial Institutions: Savings & Loan and Building Societies” by John R. Thompson
  3. “The Evolution of Financial Institutions and Markets” by Peter Tufano

Accounting Basics: “Building Society” Fundamentals Quiz

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