Building societies and other types of organisation
A Building Societies Association case study

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Page 3: Benefits of mutual organisations

A building society is a mutual organisation. This means that instead of having shareholders, it has members who collectively own the business and are also its customers. The main examples of this type of organisation in the UK are co-operative societies, mutual insurance companies and building societies. Members have the right to vote for directors regardless of how much or how little money they have with the society.

To compare the scale of mutual organisations, the assets of the UK”s top five building societies amounts to £250 billion. Lloyds TSB, a bank, alone has assets of £350 billion.

Large businesses like banks may enjoy economies of scale. By having more customers and so lower unit costs, they might appear to outperform building societies in attracting customers. However, this is not the case. So why do people choose a building society over a bank?

  • Each building society invests its profit back into the society's business. Unlike banks, mutuals do not pay dividends (for example, Lloyds TSB pays out nearly £2 billion each year in dividends to shareholders). This enables the building society to offer competitive rates of interest on both savings and mortgages. It sets the rates it pays savers at just less than the rate charged to borrowers. This margin gives the society a profit.
  • Customers choose to do business with a building society because many find them more personal, approachable and more trustworthy than banks. An independent survey during 2007 found significantly higher levels of saver and borrower satisfaction with customer service in building societies.
  • Borrowers often rely on advice about mortgages or other financial services. Many banks have closed local branches or replaced personal counter service with call centres. The personal service gives customers a sense of value for money.

Building Societies Association | Building societies and other types of organisation