The Difference Between a Bank and Building Society

The Difference Between a Bank and Building Society

When managing your money, choosing the right financial institution can make a difference to how you save, borrow, and plan for the future. In the UK, two common options are banks and building societies. While they offer many similar services, there are some important distinctions in how they operate. Understanding the difference between a bank and building society can help you make more informed decisions about financial products. 

This guide explains how each type of institution works and highlights the key features that set them apart. 

What Is a Building Society?

The simplest explanation of a building society is that it is a financial institution owned by its members. Members are typically customers who hold savings accounts or mortgages with the organisation. Building societies operate as mutual organisations, which means they are not owned by external shareholders. Instead, the people who use their services collectively own the society. This structure influences how decisions are made and how profits are re-invested.

Building societies operate by using money deposited by their savers to help fund mortgages for borrowers. Because customers are also society members, profits can be reinvested back into the society. This may support improvements to services, new products, or benefits for members.

Most building societies offer a range of financial products, including:

• Savings Accounts

• Mortgages

• Cash ISAs

• Insurance

What Is a Bank?

A bank is a financial institution that provides a wide range of services to individuals, businesses, and organisations. Unlike building societies, banks are usually owned by shareholders who invest in the company. Because of this ownership structure, banks are typically run with the aim of generating returns for shareholders as opposed to being member-driven. Profits may be distributed to investors rather than being reinvested solely for customers.

Banks generally offer a broad selection of financial products, such as:

• Current accounts

• Savings accounts

• ISAs

• Personal loans

• Credit cards

• Mortgages

• Business banking services

Banks are generally larger than building societies, with many operating nationally or internationally. They often provide digital platforms, branches, and other ways to manage finances.

Key Differences Between Banks and Building Societies

Although banks and building societies provide similar financial services, their structures and priorities can differ. Understanding the difference between bank and building society becomes clearer when comparing several key areas. These differences are highlighted below:

While both institutions provide essential financial services for individuals and businesses, these structural differences can influence how they prioritise their customers and communities.

Advantages of Building Societies

There are several advantages of building societies that may appeal to customers who value a member-focused approach to banking. Some of the key benefits of building societies include: 

Member-focused structure

Because societies are member owned, decisions are often made with those members in mind. Profits can be reinvested to improve services, develop products, or support members in other ways.

Community and local engagement

Many building societies like Monmouthshire Building Society maintain strong links with the communities they serve. This can include supporting local initiatives, charities, and regional projects.

Long-standing financial institutions

Building societies have been part of the UK financial landscape for many years. Their member ownership continues to attract clientele who value a different approach to financial services.

Should You Choose a Bank or Building Society?

When deciding between a bank or building society, it can help to think about your personal financial goals and what matters most to you. The right choice often depends on your circumstances. 

Some people may prefer banks because they often provide a wider range of products, including current accounts, business services, and international banking options. This can make them convenient for customers who want to manage many financial needs in one place.

Others may prefer building societies because of their member-owned structure and community connections. Customers who prioritise supporting mutual organisations may find this model aligns with their values. Ultimately, the right choice will depend on your individual needs, the products you require, and the type of organisation you feel comfortable banking with.

How Does a Building Society Work?

You might still be asking, how does a building society work on a day-to-day basis?

In simple terms, building societies use the savings deposited by their members to help fund mortgages for other members. This means the money saved by customers supports lending within the society.

For example:

• Savers deposit money into savings accounts.

• The society uses those deposits to help provide mortgages to borrowers.

• Any profits generated may be reinvested into the organisation.

This mutual approach means members play an important role in supporting the society’s activities. Savings help fund lending, and mortgage repayments help sustain the society’s operations. Many building societies also reinvest profits into improving services or supporting their members and communities. Learn more about MonBS and how we serve our member community. 

Summary

Banks and building societies both offer important financial services such as savings accounts and mortgages. However, their ownership structures and operating models are different.

Building societies like Monmouthshire Building Society are owned by their members and often reinvest profits into developing products and services and member benefits. Banks, on the other hand, are typically owned by shareholders and operate with a broader commercial structure.

Understanding these distinctions can help you decide which option aligns with your financial priorities. By learning more about how each type of institution works, you can better understand the difference between bank and building society and choose the approach that suits you.