What is a building society? A complete guide
Key takeaways
Building societies are mutual organisations, owned by their members rather than external shareholders, with qualifying members potentially having voting rights.
Savings and mortgages are at the heart of the building society model, although some societies also offer current accounts, loans and credit cards.
Building societies aren't automatically better than banks – compare rates, fees, products and service to find the right option for you.
Some societies may offer specialist mortgage underwriting, potentially considering circumstances that don't fit standard lending models, although acceptance isn't guarantees.
What is a building society?
A building society is a financial institution that is owned by its members rather than external shareholders. It is a mutual organisation, meaning its members typically have a say in how the society is run and can benefit from the services it provides.
Members can include people who hold savings with the society, borrowers with a mortgage, or both, depending on its rules. Building societies mainly provide savings accounts and residential mortgages, although some also offer current accounts, personal loans, credit cards and other financial products.
Under the Building Societies Act, the principal purpose of a building society is to make loans secured on residential property, funded substantially by its members. This means lending on homes is central to the building society model.
How did building societies start?
The building society movement began in Birmingham in 1775, when Richard Ketley, a publican from Birmingham, helped a group of people pool their savings to buy land and build homes.
Unlike modern organisations that continue to take savings and provide mortgages, early societies were generally wound up once all members had been housed.
Over time, the movement developed into regulated financial institutions. Today, there are more than 40 UK building societies, according to the Building Societies Association (BSA). This number changes following mergers and acquisitions.
The sector ranges from large nationwide societies such as Nationwide, Coventry and Yorkshire to smaller regional and local societies, who retain strong links to particular towns or areas.
Some societies restrict certain products by geography, while others serve customers across the UK online, alongside maintaining local branches and potentially drawing on local knowledge when assessing applications.
How does a building society work?
Building societies take deposits from savers and use this money, alongside other funding, to provide mortgages and other lending. They earn income from the difference between the rates they pay savers and charge borrowers, as well as from fees and other activities.
Although they don't have external shareholders, building societies still need to generate a surplus to remain financially sustainable, meet regulatory requirements and invest in their future.
Surplus income can be retained, reinvested in the society or used in ways that benefit members – for example, through competitive savings rates, lower borrowing costs or member rewards, depending on the society.
Legal rules set limits on how societies can operate and help preserve their mutual structure and focus on residential property lending.
Who owns a building society?
A building society is owned by its members, rather than external shareholders in the way a conventional public limited company (PLC) such as a bank is.
Qualifying customers generally become members by holding a savings account, taking out a mortgage, or sometimes both, depending on the society's rules.
Membership usually ends when the qualifying savings account is closed or, where membership is based on borrowing, when the mortgage is repaid.
What rights do building society members have?
Members can generally vote at a building society’s annual general meeting (AGM), including on certain board appointments and major decisions such as a merger or conversion into a bank. Members may also be able to attend meetings and ask questions.
Unlike a company shareholder structure, voting is generally based on membership rather than the size of a member’s financial stake, with eligible members typically receiving one vote each.
However, the exact rights vary between societies and the products held, so check the individual society’s rules to see what applies.
What is the difference between a building society and a bank?
Building societies and banks both offer financial products such as savings and mortgages, but their ownership and business models are different. Our table explains how.
Point to compare | Building society | Bank |
|---|---|---|
Ownership | Owned by qualifying members | Usually owned by shareholders |
Business model | Mutual organisation | Usually commercial or |
Voting rights | Qualifying members may have voting rights | Customers don't normally have |
Typical products | Savings and mortgages, plus some wider banking products | Usually a broader range of banking products |
Profits or surplus | Retained, reinvested or used for the benefit of the society and its members | May be distributed to shareholders |
Regulation | FCA (Financial Conduct Authority) and the PRA (Prudential Regulation Authority) | FCA and PRA |
Deposit protection | Eligible deposits may be covered by the FSCS | Eligible deposits may be covered |
Note that precise ownership structure, products, membership rights and benefits vary between individual building societies.
Is a building society better than a bank?
Neither is automatically better – it depends on what you need from your provider.
For most customers, the important things to compare are the rates, fees, products and level of service on offer, including access to branches and online banking. You should also check eligibility and whether eligible deposits are covered by the FSCS.
The ownership model may matter if you prefer the mutual structure of a building society or the shareholder model of a bank, but it doesn't guarantee better rates, service or safer products. Compare individual accounts and providers to find the option that suits you.
What products do building societies offer?
Building societies are best known for savings and mortgages, but some offer a wider range of banking products.
The range varies between societies, so don't assume a product is available simply because a society offers other types of finance. Products include:
Savings
Easy-access savings: Accounts allowing withdrawals without a fixed term, subject to the account's rules
Fixed-rate bonds: Savings accounts where money is held for an agreed period at a fixed interest rate
Notice accounts: Require advance notice before you can withdraw your money
Regular savings: Designed for customers making regular monthly deposits
Cash ISAs: Tax-efficient savings accounts, subject to ISA rules
Children's savings: Accounts designed for younger savers, with age and access rules varying by provider
Mortgages
Residential mortgages: For buying a home or refinancing an existing mortgage
First-time buyer mortgages: Products aimed at people buying their first property
Remortgages: For switching an existing mortgage to a new deal
Buy-to-let: Mortgages for properties being purchased or retained as rental investments
Self-build: Lending for customers constructing their own home
Later-life lending: Products designed for older borrowers to allow them to borrow against their existing home
Current accounts
Some building societies offer current accounts, although many remain primarily focused on savings and mortgages.
Where available, compare fees, interest or other returns, debit cards, overdraft facilities, branch access and mobile and online banking. Also check whether the account can be switched using the Current Account Switch Service.
Loans
Credit cards
Some building societies offer credit cards, but these are less widely available across the sector than savings and mortgage products.
Where available, compare the interest rate, fees, rewards and eligibility requirements with other options.
How do I join a building society?
You generally become a member by opening a qualifying savings account or taking out a mortgage, although the rules vary between societies. A typical process is:
Eligibility: Meet any age, residency, geographic or product requirements
Choose a product: Compare qualifying savings accounts or mortgages
Apply: Provide identity and address documents and meet any minimum-deposit requirements
Membership: Membership usually begins when the qualifying account is opened or mortgage completed
After joining: You may receive a membership number and information about voting rights, depending on the society
What are the advantages of a building society?
There are pros and cons when it comes to picking a building society over a bank. The advantages include:
Member-owned: Qualifying members can have voting rights and a say in how the society is run
Member-focused: Without external shareholders, societies can focus on the longer-term interests of members, although this varies between providers
Savings and mortgages: Building societies often have a strong focus on savings and residential mortgages
Specialist lending: Some societies may take a more individual approach when assessing mortgage applications
Community focus: Some societies support local communities through branches, charitable initiatives or member benefits
What are the disadvantages of a building society?
As well as positive, there could be a few downsides in opting for a building society, such as:
Fewer products: Some societies offer a smaller range of current accounts, credit cards and other products than larger banks
Branch networks: Regional societies may have fewer branches or limited geographic coverage
Eligibility restrictions: Some products may have membership, geographic or other eligibility requirements
Digital services: Online and mobile banking capabilities vary, and some societies may offer fewer digital features than larger banks
Rates and benefits: Building society rates aren't necessarily market-leading, and member benefits or loyalty rewards vary between societies
Are building societies safer than banks?
Building societies aren't automatically safer or riskier than banks because of their ownership structure. Both are financially regulated, with the PRA overseeing resilience and the FCA regulating conduct.
Check that your provider is authorised and whether your deposits qualify for FSCS protection, remembering that different brands can sometimes share the same banking authorisation.
Is my money protected in a building society?
Eligible deposits with a UK-authorised building society are protected by the FSCS up to £120,000 per person, per authorised firm.
Joint accounts have separate protection limits, while brands sharing an authorisation count together. Temporary high balances may qualify for additional protection. Investments may have different protection.
Do building societies offer better savings rates?
Not necessarily. A building society's mutual model may allow it to prioritise value for members, but it doesn't mean every society offers better rates than every bank.
Look beyond the headline rate at whether it is introductory or variable, withdrawal restrictions, minimum balances and eligibility requirements.
Compare the overall account terms, including any bonuses, before deciding whether you're getting a better deal. It’s worth comparing the wider savings market, not just other building societies.
Are building society mortgages easier to get?
It depends on the individual case and mortgage provider. Some building societies may use more manual or specialist underwriting, which can allow them to consider circumstances that don't fit standard lending models.
Regional knowledge may also influence some decisions, while certain societies offer mortgages for self-employed borrowers, unusual properties or smaller deposits.
However, lending criteria still apply and using a building society doesn't guarantee acceptance. Always remember to compare the overall mortgage cost, including fees and charges, rather than focusing solely on the interest rate.
Can building societies merge with banks or other societies?
Building societies can merge with other societies and, subject to regulatory and member approval requirements, can also acquire banks.
However, an acquired bank may remain a separate regulated entity within the wider group, rather than becoming part of the society itself.
Customers should also check which legal entity holds their account and whether different brands share the same banking licence for FSCS purposes.
Members do not necessarily have a vote on every transaction, so check the society's rules and the specific proposal.
What happens when a building society becomes a bank?
When a building society becomes a bank, it demutualises, changing from member-owned to shareholder-owned.
Members lose their ownership and voting rights, and don't automatically become shareholders. However, they may receive financial or other benefits as part of the conversion, depending on the terms.
Demutualisation is different from a merger or acquisition, which involve combining or changing control of organisations.
Personal Finance & Insurance Expert
Our expert says...
"Building societies are worth considering alongside banks, particularly if you value mutual ownership and a provider with a strong focus on savings and mortgages. But there’s no guarantee a building society will offer the best deal. New customers should compare rates, fees, product features and service across both building societies and banks before deciding".
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