Traditionally, a financial institution that accepts deposits, upon which it pays interest, and makes loans for house purchase or house improvement secured by mortgages. They developed from the Friendly Society movement in the late 17th century and were non-profitmaking with mutual status. These institutions can be found in the UK, Australia, South Africa, Ireland, and New Zealand. In the USA savings and loan associations are broadly similar organizations.
In the UK, since the Building Societies Act 1986 they have been able to widen the range of services they offer; this has enabled them to compete with the High-Street banks in many areas. They offer cheque accounts, which pay interest on all credit balances, cash cards, credit cards, loans, money transmission, foreign exchange, personal financial planning services (shares, insurance, pensions, etc.), estate agency, and valuation and conveyancing services. The distinction between banks and building societies is fast disappearing: indeed, many building societies have obtained the sanction of their members to become public limited companies. They then become profit-making banks, owned by their shareholders, instead of non-profitmaking societies owned by their subscribing members. These changes have led to the merger of many building societies to provide a national network that can compete with the Big Four banks. Competition is well illustrated in the close relationship of interest rates between banks and building societies as they both compete for the market's funds. Moreover, the competition provided by the building societies has forced the banks into offering free banking services, paying interest on current accounts, and Saturday opening. Similar change has taken place in all the other countries that have building societies. The UK building societies are now regulated by the Financial Services Authority.
Subjects: Financial Institutions and Services.