Throughout the UK you can find branches of large, multinational banks on almost every High Street. These banks are well known, well recognised and generally well understood. Alongside them, though, you will often find a Building Society. Traditionally, these only offer their services to people who live within a local catchment area and the societies are regional rather than national. As time has gone on this is not so much the case and many building societies accept customers from anywhere in the country, offering services by telephone and internet to help those who do not live near to a branch.
So, what is the difference between a bank and a building society? Well, banks are generally listed on the stock market and as such are run by shareholders. Building societies are not on the stock market and so do not have to pay shareholders any dividends as they do not have shareholders. The societies claim that this enables them to pay more money directly to their customers by way of higher interest rates on savings accounts and cheaper mortgage rates for borrowers.
When a building society is first set up, it is done so as a mutual institution. This means that every single account holder is also a member of the institution and as such has certain rights when a decision is made. In some circumstances an issue can be put to a vote. At times such as these every customer gets a vote, whether they have one pound or a million pounds in their account. Each vote has the same level of importance as the next and so customers truly feel that they have the opportunity to be involved in the running of the business.
Many building societies now have sold off their mutual institution status, giving their members a lump sum instead. These companies have then been listed on the stock market and morphed into traditional banks.