‘Banks and Building Societies – spot the difference!’
October 2, 2007 at 9:31 am
Once upon a time it was easy to distinguish between Banks and Building Societies. The latter were where you kept your savings and applied for a mortgage, while the former contained your current account and allowed you to take out personal loans for big buys such as cars. Over the last twenty years, however, Building Societies have demutualised, and the differences have gradually disappeared, leaving many of us confused about how the two institutions vary. Recent research by Fool.co.uk has revealed that 1 in 3 of us are very much in the dark.
According to Fool.co.uk’s results, many of us think that the Abbey National, Alliance and Leicester, Cheltenham and Gloucester, Woolwich, and Bradford and Bingley are still Building Societies, whereas in fact they are all banks and, in the case of the Abbey, have been so for some 18 years.
The fundamental difference between the two entities is straightforward: Building Societies are mutual organisations owned by their members who have a say in the running of them. Banks, on the other hand, are owned by their shareholders who may or may not be customers and this is where a conflict of interest can arise between what is good for the shareholder and what is good for the customer.
Some detractors may feel that Building Societies have rather an old-fashioned image but these mutual organisations pride themselves on playing an important role in the local community, especially in rural areas. Unlike the banks who seem to have no qualms about closing down branches and encouraging customers to use telephone and internet banking, the Building Societies are doing their best to keep branches open.
It looks as though this loyalty is reaping rewards in terms of our perception of the two institutions. Fool.co.uk’s research shows that 61% of us prefer to take out a mortgage with a Building Society rather than a bank. 62% of us would favour a Building Society over a bank for discussing our personal finances, with only 22% of us preferring to sit down at the bank to have this type of discussion. 44% feel that Building Societies have “their best interests at heart” whilst 94% are of the opinion that banks are only interested in making profits.
This bias in favour of the Building Society could, however, mean that we are missing out on good deals on credit cards, savings accounts and mortgages – all areas in which various comparison tables feel that banks are a better bet. The head of Personal Finance at Fool.co.uk warns against our pre-conceived notions saying: “It seems that many of us are happy to cling on to the schmaltzy notion that building societies have our best interests at heart. But there is nothing romantic about paying more interest than you need on your credit cards and mortgages, and earning less interest than you deserve on your savings.”
In response, the executive director of Nationwide Building Society rejected Fool’s assertion, stating: “A key objective of the banks is to please their shareholders whereas at Nationwide we are able to focus on delivering long term good value to our members through highly competitive products and services.” He cites the free usage of the Nationwide credit card abroad and the lack of unnecessary fees in mortgage products as particular areas of value for customers.
