A building society is 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 are non-profit making. They are regulated by the Building Society Act (1986). The societies accept deposits into a variety of accounts, which offer different interest rates and different withdrawal terms, or into 'shares', which often require longer notice of withdrawal. Interest on all building- society accounts is paid net of income tax, the society paying the tax direct to the Inland Revenue. The societies attract both large and small savers, with average holdings being about 5000 pounds.
Loans made to persons wishing to purchase property are usually repaid by regular monthly instalments of capital and interest over a number of years. Another method, which is growing in popularity, is an endowment mortgage in which the capital remains unpaid until the maturity of an assurance policy taken out on the borrower's life; in these arrangements only the interest and the premiums on the assurance policy are paid during the period of the loan. Since the 1986 Act, building societies 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. 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. Research Building Society
Abbreviations
Money
Research Building Society