Is a building society better for savings than the banks

chickmug

When I was asking around one building society yesterday they said were better than banks as all the profits went to their customers not to shareholders. I did ask if that was the case why were they not higher in the tables as far as their interest rates but felt the person started getting 'tongue tied' and I was short of time so never carried the chat through.

Is there any substance in what they say and what direct benefit would it be, to me, when they are not in the top half of any tables?

debbie42

I'd just opt for the best rate, taking into account other personal considerations such as ease of use, accessibility etc. A lot of ex-building societies are owned by banks these days anyway.

sdooley

Banks in general are a lot keener on 'special offer' rates which peter out after a year - though building societies do this too sometimes.

I locked into a 7% bond with the Yorkshire BS a couple of months back so there are some good rates from both. Maybe the building societies are giving their borrowers more of a break - or maybe the banks are just desparate for your cash.

The profit thing is in theory true but the profit can be used either by increasing savings rates or cutting mortgage rates or investing in the business for the future.

Milarky

Building societies give the banks plenty of competition for paying the best AND the worst rates at the same time. Where they seem of score is in still being able to provide personal service and being able to straighten problems out quickly.

debbie42

This assumes they are actually making a profit...:rolleyes:

dunstonh

When I was asking around one building society yesterday they said were better than banks as all the profits went to their customers not to shareholders.

Thats a marketing response. You gave the perfect answer the person wasn't able to respond.

In theory, they should offer the best rates if you only look at the fact that shareholders are not paid any money. However, there are some other issues to consider as well.

1 - Banks are mostly a lot larger than building societies and economies of scale apply. If x bank can raise £500 million on an account type compared to x building society only raising £50 million then the bank can offer better terms.
2 - Shareholders do need to be paid but they also put pressure the board to return profits and increase market share. Mutuals don't have that pressure. So, a generalisation is that a mutual could be running less cost effectively than a bank. Also, banks (and insurers and many other businesses) will often buy business to increase market share by cross subsidising. This may mean they run an account that is not at all profitable for them but allows them to increase their market share.

as milarky says, the relentless cost cutting that banks have had to do has hit customer service (same applies to insurance and other financial services). Too many people nowadays are focused on tables of best buys rather than quality of service. To get up those tables means cutting back somewhere else and customer service is usually where it goes first.

Hungerdunger

dunstonh wrote: »

2 - Shareholders do need to be paid but they also put pressure the board to return profits and increase market share.

Northern Rock?

baby_boomer

Bank best buy rates usually beat the building societies if you are prepared to check the rates every six months.

Which most people posting here are prepared to do.

dunstonh

Northern Rock are the perfect extreme example of it going wrong. The board was incapable of doing the job. That doesnt mean a mutual couldnt or wouldnt make the same mistake. However, the pressure on them is not as intense. Standard Life could be a good example of a mutual that got it wrong (before it had to demutualise because of those errors).

kostigovs

I am constantly shopping around for the best fixed interesty rates whilst at the same time ensuring no bank or building society is getting more than £35K in deposits. Given how many of them are intertwined eg HBOS/Birmingham Midshire this can be tricky.

My recent experiences have shown that the building societies have an edge over banks and former building societies

baby_boomer

dunstonh wrote: »

Northern Rock are the perfect extreme example of it going wrong. The board was incapable of doing the job. That doesnt mean a mutual couldnt or wouldnt make the same mistake. However, the pressure on them is not as intense. Standard Life could be a good example of a mutual that got it wrong (before it had to demutualise because of those errors).

Equitable Life and Standard Life are both examples of mutuals making serious errors because mutuality rarely allows proper scrutiny of a board's activities.

Sometimes a lack of pressure can be a problem, too.

However the OP is discussing banks and building societies so we should stick to the topic.