Building Societies vs Banks: What’s the Difference?

Walking down the high street, you will often see a mix of banks and building societies — with each

Updated: July 11, 2024
Connor Sephton

Written By

Connor Sephton

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Walking down the high street, you will often see a mix of banks and building societies — with each offering accounts, loans and mortgages to customers.

But while they may look the same, there are key differences between these financial institutions. In this guide, we'll explore what sets them apart in greater depth.

What is a Building Society?

Building societies have been around for hundreds of years, with the first launching in Birmingham back in 1775.

To this day, they tend to specialize in savings accounts and mortgages. They're owned by members — in other words, the customers who use their services.

Profits are reinvested back into the business, such as in the form of lower interest rates, with many building societies also making donations to local communities.

Typically, building societies tend to be smaller operations that may only have branches in a specific town or city.

What is a Bank?

By contrast, banks tend to be publicly listed companies on the stock market — with profits divided among shareholders.

Many of these financial institutions have an international presence and a broader range of products for customers.

A significant milestone came in 1981 when banks were allowed to start offering mortgages for the very first time.

What are the Advantages and Disadvantages of Building Societies?

The pros and cons associated with building societies can be pretty subjective — mainly because it hinges upon your financial circumstances.

What might be considered a drawback for one consumer would be a massive plus for another. Generally speaking though, here's a look at both sides of the debate.

Advantages

  • Better customer service. Research by the Building Societies Association suggests that by and large, these financial institutions outperform banks when it comes to satisfying their members. While 95% of Building Society customers say they receive a good service, just 85% of rival providers feel the same.
  • A presence in the local community: The closure of bank branches on our high streets has caused a fair amount of controversy in recent years. Research by the Office for National Statistics shows 5,050 of them — that's 44% of the whole network — shut for good between 2012 and 2022. By contrast, only 12% of building societies did the same. The likes of Nationwide have sought to make this a unique selling point in ad campaigns.
  • Higher interest rates: With no dividends to pay to shareholders, many building societies end up reinvesting profits into offering more competitive savings accounts for members. A study by the Financial Conduct Authority revealed that, at one point in 2024, the lowest interest rate that a building society offered in an easy-access account was still twice more than the least-competitive bank.
  • Flexible lending criteria: While regulators have embarked on an aggressive regulatory clampdown to prevent mortgages from being given to those who can't afford them, building societies have established a reputation for offering more flexible lending criteria than banks. This can be especially beneficial for the self-employed, as their income may fluctuate from month to month. Many building societies depend on manual underwriting — meaning applications are considered by people rather than computers.

Disadvantages

  • Fewer products: Given building societies have a laser-like focus on mortgages and savings accounts, customers may find that they have fewer products to choose from at a building society. Many don't offer current accounts for day-to-day spending, for example.
  • Geographical restrictions: Picture the scene — you've just discovered a mortgage with a market-leading interest rate, one that would make your dream home a reality. There's just one catch: in some cases, building societies only offer these products to eligible consumers who live in the communities they serve. This can also have a knock-on effect when it comes to easily accessing a local branch.
  • Limited options: The number of building societies has dwindled substantially in recent decades — and while they continue to have 25 million members, they only account for 23% of outstanding residential mortgages. When coupled with the fact that some smaller institutions only operate in specific areas, this means you might not have a lot of choices when searching for a provider.
  • Missing services: Beyond a dizzying array of financial products, banks also deliver other valuable services — such as investment advice, travel money, insurance and credit cards. Building societies have also faced growing calls to invest more aggressively in their IT infrastructure so their apps and websites keep up with the market.

Choosing the Right Institution for Your Needs

When picking between banks and building societies, it's worth taking a step back and reflecting on the services you'll need the most.

If you're focused on saving money and building a nest egg for the future, you should carefully compare the accounts on offer to find the most generous interest rate. This might involve locking away your funds for a while, but it'll give your cash the chance to compound.

Next, let's talk about getting on the housing ladder. Generally speaking, building societies tend to offer more competitive deals to borrowers with low deposits. That means you might snap up a better fixed rate on mortgages with a loan-to-value of 90% or 95%. While the headline rates advertised by banks may seem more appealing at first, it's worth checking to see whether there are any upfront fees that drag up the overall cost.

There have also been some streaks of innovation on show from building societies. Some allow ultra-low deposits, meaning consumers won't need to save for years on end to get a downpayment.

Others take council tax and rent payments into account during credit checks too — making it easier to prove you're financially responsible and up to date on bills.

What is the History of Banks and Building Societies?

To cut a very long story short, the UK has a storied history in banking that dates back all the way to the 17th century. Goldsmiths with vast supplies of the precious metal started operating, while the Bank of England was established in 1694. Fast forward to the 20th century, and we began to see consolidation in this space — with a smaller number of competitors commanding a greater market share. Today, many now have a global footprint.

Building societies followed in the 18th century — and interestingly, they were initially temporary institutions that would close when all of their members were in accommodation. Permanent ones began to pop up in the mid-1800s — and by 1910, more than 1,700 were in operation. Now, only a few dozen remain.

This is largely because many major building societies, Halifax among them, actually ended up converting into banks. Higher costs and growing competition from fintech brands have also proven problematic for some of the smallest societies in operation.

3 Innovative Building Society Examples

Even though the number of building societies has dwindled in number, there are still some innovative institutions out there. Just a few examples include:

  • Ecology Building Society: This organization allows those with savings accounts to support eco-conscious initiatives nationwide. Meanwhile, it offers mortgages geared towards properties that are environmentally friendly and good for the climate.
  • Vernon Building Society: First established all the way back in 2024, “The Vernon” has developed online services while recognizing that more than 70% of its members are over the age of 60 — and may prefer to bank in branches. To this end, over £1 million has been spent on refurbishing its sites.
  • Newcastle Building Society: Others have been tackling the challenge of closing banks head-on. In a particularly novel twist, Newcastle opened a branch that's open five days a week within a library in Knaresborough — complete with mortgages, financial advice, savings accounts, and a kiosk that can be used by customers from other banks.

Frequently Asked Questions

Are Building Societies Safer Than Banks?

It's important to stress that, no matter whether you're with a bank or building society, your money will be protected in the same way.

Both types of financial institutions are subject to the same regulations — and should either fail, customers will be able to receive up to £85,000 back through the Financial Services Compensation Scheme.

While larger building societies do enjoy greater levels of liquidity and stable ratings, there is a possibility of smaller entities being priced out by deep-pocketed high street banks — or suffering from pressure on their balance sheets when interest rates are high.

How Many Building Societies Are There in the UK?

As of 2024, there are 42 independent building societies operating nationwide. This number has contracted substantially since the 2008 financial crisis, primarily because of mergers.

Who Are the 5 Biggest Building Societies?

Larger building societies remain a mainstay of the British high street — and you'll certainly recognise some of the names on the list.

1. Nationwide

Figures from 2024 show this building society manages about £272 billion in assets, with more than 15 million customers on the books.

2. Yorkshire Building Society

In a rather distant second place is the Yorkshire building society, with £61 billion in assets as per its 2023 annual report. It boasts a network of more than 250 branches across the country.

3. Coventry Building Society

Narrowly behind with average total assets of £60.6 billion in 2023 is Coventry building society. The latest figures from the Building Societies Association suggest it has more than two million members.

4. Skipton Building Society

In operation for over 170 years, Skipton building society is in fourth place with total assets of £35.6 billion and more than one million members out of 87 branches.

5. Leeds Building Society

And last but by no means least, Leeds building society is the fifth-largest in the UK. By the end of 2023, it boasted 919,000 members with total assets of £28.1 billion.

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