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Banks and Building Societies


Both banks and building societies are prominent features on the British high street.

Both offer a wide range of products and services, often products and services that are very similar. In the recent recession much has been made of the instability of the large financial institutions, most commonly banks, but much less has been made of how the building societies are coping with the problems.

So what are the main differences between building societies and banks? Primarily banks are listed on the stock market and are therefore owned by their shareholders and accordingly run for their shareholders. This means that they have to pay dividends to shareholders which comes out of the profits of the banks.

Accordingly building societies, free of the necessity of having to pay dividends to shareholders, often claim that they can offer better rates when it comes to interest on saving accounts and cheaper mortgages.

Building societies have traditionally been set up as mutual institutions. This means that consumers who take out accounts become members and have the right to vote on any issue that affects their society, most prominently on proposed takeovers. Each member has a single vote regardless of how much they have saved or borrowed. Traditionally they only lent within a certain catchment area, inspiring a small, community based feeling, but local societies who were successful have become more nationwide, as is the name of one of the biggest British building societies. As such there is no need to look for a building society based in your area, as there is almost certainly at least one on your high street.

In recent years there have been big changes in the market, and as building societies become national there are very little practical differences between banks and building societies. Some groups of building society savers have been trying to get these institutions to turn into banks in the hope of securing a windfall.

These changes mean that for many, the days of building societies are numbered. Large bases and international conglomerates mean that banks can offer deals to match or surpass that found in building societies. Still, the presence of certain high profile building societies on the high street suggests that there is still a place for mutual societies.

One of the reasons why building societies may soon disappear is because of the competition posed by large conglomerates, such as the Santander group – of which Alliance & Leicester is now a part. These large conglomerates, even with the credit crunch, are in a position to offer excellent value deals in a way that other groups are not. If you are looking to open a savings account Alliance & Leicester is a good place to start your search.



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