Building societies have been part of British financial life for nearly two centuries, yet plenty of people aren’t entirely sure how they differ from a regular bank. The confusion is understandable, since day to day, using a building society account can feel almost identical to using a bank one.
The real difference lies in who owns the institution, and that ownership structure quietly shapes everything from customer service to how profits get used.
For related reading, see our guides on choosing the right bank account.
Quick Answer
In short: A building society is a financial institution owned by its members, the customers, rather than by shareholders. This mutual structure means profits are typically reinvested into better rates and services rather than paid out as shareholder dividends, though building societies often have fewer branches and digital features than major banks.
Key Takeaways
- Building societies are owned by their members, not external shareholders.
- Profits are typically reinvested rather than distributed as dividends.
- Building societies often specialise heavily in savings accounts and mortgages.
- Customer service satisfaction tends to score well for building societies in independent surveys.
- Deposits are protected up to £85,000 under FSCS, the same as with banks.
What Makes a Building Society Different?
The core difference is ownership. A bank is typically owned by shareholders, who expect a return on their investment through dividends and share price growth. A building society is a mutual organisation, owned collectively by its members, essentially its customers.
This means a building society’s priority, at least in principle, is serving its members well rather than maximising shareholder returns, which can influence everything from interest rates offered to how customer complaints are handled.
How Building Societies Are Owned and Run
When you open a savings account or take out a mortgage with a building society, you typically become a member with certain voting rights on major decisions, such as whether the society should convert to a bank (a process known as demutualisation).
Several well-known former building societies converted to banks in past decades, which is partly why the distinction has become less well understood over time.
Building Society vs Bank: Key Differences
Building societies often focus primarily on mortgages and savings accounts, rather than offering the full range of products a major bank might, such as business banking or extensive international services.
Because they’re not answerable to external shareholders demanding short-term returns, building societies can sometimes offer more competitive savings rates or lower mortgage rates, though this varies by institution and isn’t guaranteed.
What Building Societies Are Good At
- Savings accounts, often with competitive rates on easy access and fixed-term products.
- Mortgages, particularly for first-time buyers or those with more complex circumstances, where local branch knowledge can help.
- Customer service, with many building societies scoring well in independent satisfaction surveys.
- Community focus, with some societies maintaining strong local branch networks even as banks reduce theirs.
Where They Fall Short
- Fewer branches nationally, particularly compared to the largest high street banks.
- Less extensive digital banking features, though this gap has narrowed considerably in recent years.
- Narrower product range, often lacking things like extensive travel services or complex business banking.
Comparison Table
| Feature | Building Society | Bank |
|---|---|---|
| Ownership | Members (customers) | Shareholders |
| Focus | Savings and mortgages | Full range of banking products |
| Branch network | Often smaller, regional strength | Typically larger, national |
| App features | Improving, sometimes basic | Often more advanced |
| Customer service reputation | Frequently strong | Varies by provider |
| FSCS protection | Yes, up to £85,000 | Yes, up to £85,000 |
Common Mistakes
- Assuming building societies are less safe. They carry the same FSCS protection as banks, up to £85,000 per person, per institution.
- Overlooking them when comparing mortgage rates. Building societies can be genuinely competitive, particularly for first-time buyers.
- Assuming all building societies have weak apps. Many have significantly improved their digital offerings in recent years.
- Confusing former building societies with current ones. Several well-known former societies are now banks following demutualisation.
Real UK Scenarios
Scenario 1: Helen, a first-time buyer.
Helen found a building society offered a more flexible mortgage assessment for her situation as a self-employed applicant, compared with the standard criteria at a major bank.
Scenario 2: Robert, prioritising customer service.
After a frustrating experience with his previous bank, Robert switched his savings to a building society known for strong customer service ratings, valuing that over marginal rate differences.
Scenario 3: Aisha, comparing savings rates.
Aisha compared easy access savings rates across banks and building societies using MoneyHelper’s independent tools, ultimately choosing a building society offering a slightly better rate.
Expert Tips
- Compare building society mortgage rates directly alongside bank rates rather than assuming one is automatically cheaper.
- Check the building society’s app and online banking reviews if digital access matters to you, since this varies significantly between providers.
- Remember that FSCS protection applies per banking licence, so check whether a building society shares a licence with another provider if you’re spreading larger savings.
- Ask about local branch access if face-to-face banking matters to you, as building societies often maintain stronger regional presence.
Frequently Asked Questions
Is a building society safer than a bank?
Both carry the same FSCS protection up to £85,000 per person, per institution, so neither is inherently safer than the other.
Can anyone join a building society?
Yes, typically anyone can become a member by opening a savings account or mortgage with the society.
Do building societies pay better interest rates than banks?
Sometimes, though this varies by product and provider, so it’s worth comparing rates directly rather than assuming one type is always better.
What is demutualisation?
This is the process where a building society converts into a shareholder-owned bank, which several well-known UK institutions have done in the past.
Do building societies offer current accounts?
Some do, though their core focus has traditionally been savings and mortgages rather than everyday banking.
Are building society mortgages harder to get?
Not necessarily; some building societies are known for more flexible lending criteria, particularly for self-employed or first-time buyers.
Can I get a mortgage from a building society if I’m self-employed?
Yes, many building societies consider self-employed applicants, though criteria vary by institution.
Do building societies have online banking?
Yes, most now offer online and mobile banking, though features can be more basic than some major banks.
What happens to my savings if a building society merges with another?
Your savings remain protected, though FSCS protection limits may combine if two merged institutions previously shared separate licences.
Are building society branches disappearing?
Some closures have occurred industry-wide, though many building societies have maintained a stronger regional branch presence than large banks.
Conclusion
Building societies offer a genuinely different ownership model to banks, one that can translate into strong customer service and competitive savings or mortgage rates. They’re well worth comparing directly against banks rather than overlooking, particularly for savings and first mortgages.
Building societies are owned by their members rather than shareholders, often focusing on savings and mortgages with strong customer service. They carry the same FSCS protection as banks, though typically with a smaller branch and digital footprint.
This article is for educational purposes and should not be considered financial advice.
