What is a building society? How they differ from banks

Investing your wealth with building societies can give you access to exclusive rates. But there are reasons why some savers prefer to use banks for their cash instead.

In this guide, we explain what building societies are, how they differ from banks, and why they can be an attractive option for savings and mortgages.

What is a building society?

Building societies offer similar services to banks. Most building societies provide a range of savings accounts and mortgages, but some also have current account options.

As a member of a building society, you can benefit from exclusive rates, typically on fixed-rate ISAs and bonds. But you might be limited by how much you can deposit or withdraw from your account.

This makes them a popular addition to a wider cash and investment portfolio, letting you balance high interest with different levels of access.

Building societies were originally designed to help people borrow money when they were turned down by banks. These days, anyone over the age of 18 can join a building society and benefit from a range of ways to save and borrow money.

What’s the difference between a building society and a bank?

Building societies are owned by their members. This means you get to vote on how they’re run. They also reinvest their profits back into the business.

Banks are typically owned by shareholders. This means they often have more money, leading them to provide a wider range of saving and borrowing services.

Are building societies safer than banks?

Building societies and banks are equally safe ways to protect and grow your wealth.

Both are regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). And the Financial Services Compensation Scheme (FSCS) protects cash deposits held in each building society or bank account up to £85,000 per individual, per banking group.

What are the advantages of building societies?

Building societies can help you secure and increase your wealth in a handful of ways:

Higher interest rates: Building societies don’t have to pay profits or bonuses to shareholders. This means their interest rates can be higher on savings accounts, helping you grow your money while protecting it from risk.

Exclusivity and personalisation: Compared with some bigger banks, building societies can give you more personalised services and support. This may include financial advice.

Competitive mortgages: Low-interest mortgages can help you put your money into property. Building societies are also known for their attractive mortgage rates for first-time buyers.

What are the potential disadvantages of building societies?

For some savers, building societies may appear limited compared to banks for the following reasons:

• Reduced risk tolerance: Building societies avoid risk when it comes to saving and lending. This can be limiting for those looking to add higher-risk options to their savings portfolio or for start-ups looking for loans.
• Less account variety: Compared with big banks, building societies may provide fewer savings options.
• UK-based: Unlike global banks, building societies are UK-based. This means they might not support international investment options, like overseas mortgages.

For these reasons, building society accounts are popular as part of a wider cash portfolio, rather than as a single account.

While building societies offer unique and attractive rates, they often lack the cash reserves or higher deposit limits you might expect from a large bank.

What to consider before opening a building society account

As with all savings, investments, or cash deposits, you should understand the terms before funding an account.

You need to know if your cash is fixed, or if you can make withdrawals. You should also check how much you can deposit and earn, and what support you’ll get.

The following are important considerations before opening a building society account:

• Money goals: Is the account going to grow your wealth more than alternative savings or investments? Many building society savings accounts have high interest rates but also have deposit limits.
• Access: Are there withdrawal limits or fixed terms? Are you happy to grow your money in this account without touching it?
• Taxes: Some accounts, like ISAs, offer significant tax relief. This can help grow your cash compared with alternative accounts with lower tax thresholds.

What are the biggest building societies in the UK?

There are 42 building societies in the UK according to the Building Societies Association (BSA).

Below are some of the biggest UK building societies, based on their number of members and how much wealth they manage: 

• Nationwide Building Society: Nationwide is the world’s largest building society. Its 16m members benefit from exclusive savings options including fixed-rate ISAs and high-interest accounts. It also regularly shares its profits directly with members as cash lump sums.
• Yorkshire Building Society (YBS): YBS manages over £40bn in wealth for its members. Its popular savings options include cash ISAs and fixed-rate bonds designed for growing wealth in the long term.
• Coventry Building Society: Coventry Building Society provides exclusive accounts and rates to its 2m members, including fixed-rate bonds and ISAs.

These accounts provide guaranteed interest on your money over a set time, which can help you plan for the future.

Building societies can strengthen your wider wealth strategy

Building societies offer exclusive high-interest accounts to members, helping you grow your savings.

These often include fixed-rate ISAs and bonds that guarantee interest and protect your wealth against risk. But there can be limits on how and when you can access your money.

This is why they’re a popular addition to a balanced portfolio of high-interest accounts with greater deposit limits.

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