Once upon a time you knew where you stood with high street financials.
Building societies would regularly outperform banks when it came to providing value to customers. With no shareholders demanding dividends, mutuals existed to serve their members, meaning higher rates of interest on savings accounts and perhaps a greater focus on customer service.
But the heyday of the building society seems resolutely in the past. The list of mutuals that have converted to banks is lengthy; from Bradford & Bingley to Halifax, and Alliance & Leicester to Woolwich, many of which were then absorbed into larger banking groups.
So there’s less choice available from building societies because there are far fewer. And, although they have been allowed to offer current accounts since the 1980s, most do not; currently Nationwide is the only building society offering main bank accounts nationally – the others that do limit their customer base, usually by an area.
But there’s more to banking than current accounts, so here’s what to consider when choosing between a bank and a building society.
Certainly building societies would argue that they offer a service that’s more personal than most banks.
Guy Simmonds, Nationwide Building Society's head of customer management, says: “We are owned by our customers, our members, and they are at the heart of what we do, what we offer and how we do it.
“Being a mutual means our members come first – we don’t have to create additional profit to return to shareholders.
“We don't do new customer only deals and we aim to reward loyalty to the Society. Customer service is central to our difference and we pride ourselves on having customer service satisfaction scores that are significantly higher than our high street competitors.”
He adds: “As a Building Society we do things differently to shareholder-owned banks. It’s an accumulation of lots of small differences that means our members are more satisfied than bank customers.”
Yet banks are behind some of the fastest innovation and provide a wealth of different products.
A spokesperson for the British Bankers Association told The Independent: “Banks compete to attract and retain customers every day by providing first class service. For example, the industry has invested heavily in digital technology to make services more accessible and help customers better manage their money.”
Interestingly, despite the many building society closures, there is growing consumer choice away from the main banking providers. Hannah Maundrell, editor in chief of the website money.co.uk, says: “Historically building societies have a reputation for offering higher rates on savings and lower rates on mortgages but this is no longer the case. Big banks, challenger brands and even supermarkets are now competing fiercely with them for your custom. This gives you more options than ever before; it’s no longer a two horse race.”
In certain areas, building societies do still outperform banks. Competition in the mortgage market is fierce at the moment, yet analysis carried out last month by Moneyfacts.co.uk revealed that building societies are winning the mortgage rate war, beating average bank rates across both two and five-year fixes.
Charlotte Nelson, finance spokesperson at the website, explained: “The domination of building societies is clear to see when you cast your eye over the best buy tables, with five out of the six two-year fixed rate mortgage best buys being offered by mutuals.
"More importantly, the lowest deals aren’t just reserved for those with larger deposits; building societies are hitting it out of the park for those with smaller deposits too…
“Putting customers first is what mutuals strive for, which is clearly reflected by the fact that borrowers are being offered much lower rates compared to their banking rivals. Building societies also have a lot more flexibility when it comes to their approach to underwriting, allowing them to opt for a more personal approach.”
Focus on what matters
While some customers may feel strongly about banking with a less commercially minded organisation, many will be led by the best buy tables. Ms Maundrell urges “Focus on who gives you the best deal when comparing your options. Don’t be swayed by whether the provider is a bank or building society.
Unless you’re passionate about being involved in shaping their future the difference it makes to the deals or service you get is minimal, especially if you manage your finances online.”
Jody Coughlan, head of money at comparethemarket.com, says it’s important to factor in customer service as well. She says: “The reality is that whether your financial relationship is with a bank or building society should make little difference. The primary consideration should be around the actual product and whether or not it is suitable for your needs, as well as the institution itself, for example, if having access to a branch is important to you then you may consider location a key factor.
“As products can often change, and banks and building societies equally amend interest rates and perks, it definitely pays to review your banking situation from time to time and ensure you’re getting the most from your accounts.”Reuse content