If you are currently shopping around for a new bank or ready to open your first bank account, you may be wondering what the best option out there is. This article may be able to help you when choosing between two of the main type of financial institutes for financial services – banks and building societies.
The main difference between these two types of financial institutions is who owns them. A bank is owned by the shareholders and tends to focus on profits. A building society, on the other hand, is owned by the members of the institution and they are focused on providing the services their customers, also owners, require. Banks send shareholders a dividend check each year based on profits, whereas building societies put any profits back into operations of the business.
To help you determine which option is right for you, below is a look at the advantages and disadvantages of both types of financial institutions.
Advantages of a Bank
Bank tends to be bigger and spread out through more regions of the country than building societies. Due to this fact, they tend to have more assets available to them and offer more services to their customers, such as 24/7 banking and customer services. They are also better equipped to handle a large volume of customers and often have multiple branch and ATM locations for added convenience. Funds maintained in a bank are also insured through the National Credit Union Administration. Banks also do not have any membership requirements and make their services available to everyone. Banks also tend to be leaders in terms of technology for services such as online banking, budgeting tools, etc.
Disadvantages of a Bank
While the advantages sound good, there are also several disadvantages of banking institutions. Typically, banks charge higher account-keeping and exception fees than building societies. They also tend to offer higher interest rates on many of the home and personal loan products, which may add up significantly over the course of your loan. The vast size of most banks may allow them to provide more services, but it often does not provide the individualised experience like a building society may. Banks are less likely to modify accounts or reduce banking fees. In addition, the interest rates earned on many savings or term deposit accounts are usually lower.
Advantages of a Building Society
Building societies are usually smaller than a bank, but this allows them to provide individualised services to their customers. They often offer lower interest rates on home mortgage, personal loans and credit cards. Their overall banking fees are usually slightly lower than the amount charged by most banks. In addition, building societies typically offer better interest rates on savings and term deposit accounts. Building societies essentially try to provide better customer service along with cheaper banking.
Disadvantages of a Building Society
The main disadvantage of a building society is that not all societies are opened to everyone. These financial institutions are usually community based and may have certain requirements in order to become a member. In addition, building societies are smaller and usually have less assets available to them. This means that they will not offer as many different services as a bank may offer, in addition they may not accept as many loan applications as a bank does. Even though this may have been a fairly big obstacle in the past, it isn’t as much of an issue these days.
While there are many differences between the two types of financial institutions, you must look at what each institution offers separately to determine which would be the best option for you. Be sure to read the bank or building society’s terms and conditions before making your final decision. This will outline the services they offer and various fees they charge. Also, be sure to check the different interest rates, especially if your are looking for a loan, credit card or mortgage.
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