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Are building societies better than banks?
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You often hear people say that building societies are better than banks. After all, building societies are owned by their members, meaning that - in theory - they should make more of an effort to look after their customers.
However, 700,000 Nationwide Building Society customers were affected by an IT failure last week that saw them billed twice for transactions, so that raises the question: are building societies any different?
Let's start by looking at the basic differences between banks and building societies.
The big picture
The biggest difference is their ownership.
Banks are owned by shareholders and are normally listed on the stock market. A bank's primary purpose is to generate the maximum possible level of profits and then pay dividends to shareholders.
Building societies are owned by their customers - the 'members'. Supporters of building societies argue that the different ownership structure means that societies offer better products than banks and are less likely to rip off their customers.
Building societies also tend to raise less money from financial markets. If you're a mortgage lender, you need to obtain money to lend out from somewhere. The traditional approach is to raise money from savers by operating savings accounts. But lenders can also borrow from other banks and financial businesses via the financial markets.
Societies face tighter restrictions on how much they can borrow from the markets, and have generally taken a relatively low-risk approach to raising money for lending.
But that's not to say that building societies never take risks. Several societies ran into trouble during the financial crisis because they had made loans to higher-risk borrowers who were struggling to pay off their debts. Both Nationwide and Yorkshire building societies had to rescue some of their smaller counterparts.
So those are the 'big picture' differences between banks and building societies, but it's also really important to look at individual products and see where you can get the best financial deals.
Let's start with the traditional mainstays of building societies - savings accounts and mortgages.
For many people, Cash ISAs are the best way to save because you don't have to pay any tax on your interest.
Here are the top-paying Cash ISAs right now.
|Account||Interest rate (AER)||Notice/term||Minimum deposit||Notes|
|Halifax Five-Year ISA Saver Fixed||4.15%||Five-year bond||£500|
|Halifax Four-Year ISA Saver Fixed||4.1%||Four-year bond||£500|
|Santander Two-Year Fixed Rate Major ISA||4%||Two-year bond||£1|
|Santander Direct ISA (Issue 9)||3.3%||Instant access||£2,500||Includes 2.8% bonus for first 12 months|
|Coventry BS 60-Day Notice ISA||3.25%||60 days||£1|
Although Halifax was once a building society, it's been a bank for 15 years and is now part of Lloyds. It's the clear leader in the Cash ISA market, and the building societies don't have any market-leaders in this sector.
And when it comes to conventional savings accounts, the building society products still aren't as strong as the bank ones.
For example, the highest paying five-year fixed-rate bond is the BLME Sharia Compliant Five-Year Premier DepositAccount. This account pays an 'anticipated profit rate' of 4.6% a year which no other account can beat. (As this account is Sharia compliant, it doesn't pay interest, but pays out anticipated profit instead.)
And if you don't fancy an Islamic account, the next best rate is still from a bank. The State Bank of India's five year bond pays 4.5% a year, ahead of any building society.
Comparing mortgages is always hard because there are so many factors to consider. There's the interest rate, the fees, the size of your deposit, and you also have to decide what kind of mortgage you want.
That said, we think it's pretty clear that the sexiest mortgages on the market come from HSBC and Santander. Both banks are offering five-year fixed-rate mortgages at 2.99%. You'll need a 40% deposit to get either mortgage, but this is an astonishingly low rate for such a long fixed term.
Of course, you may not want a fixed-rate mortgage and prefer to get a lower rate. In return for the lower (variable) rate, you take the risk that your interest payments could change at any time.
Leeds Building Society is currently offering a very attractive two-year discounted mortgage at 2.85%. The fees aren't too high, and you'll only need a 25% deposit to get this deal. Nationwide has also cut the rates on several top mortgages this week.
The Leeds two-year mortgage is probably the strongest building society loan. Looking at the mortgage market as a whole, we'd say this sector is a draw between banks and building societies.
In the credit card market, banks are the clear winners. Most of the top cards are offered by banks.
So if you transfer your credit card debt to the Barclaycard 21-Month Platinum Visa card, you won't have to pay any interest for 21 months, and you'll only have to pay a 1.3% fee. That's much lower than typical balance transfer fees, which are normally around the 3% mark.
Meanwhile, Santander offers one of the best cashback cards. With its 123 credit card you can earn 3% back on your petrol spending up to a limit of £9 per month. However, you do have to pay a £2 monthly fee.
So on the basis of this quick overview, banks do appear to have the stronger products overall. We'd stress that there are some strong building society products out there and things can change quickly as accounts and cards are frequently withdrawn and relaunched.
Still it's fair to say that if you conduct all your financial transactions with a building society, you will miss out on some strong deals. On the other hand, you'll get the satisfaction of supporting a mutual business that isn't owned by City institutions.
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The thing that annoys me, as a Nationwide customer, is that in the past when I have accidentally gone over my available balance I have been charged £35 per unauthorised transaction. I had 2 transactions taken, unauthorised, in this recent error but is there any mention of a £35 payment made to me by Nationwide for their unauthorised taking of my money? No!
The rules have to be the same for both the customer and the business. If we do wrong and you're going to charge us then when you do wrong you should be charged that same penalty fee.
I see this item is sponsored by the Halifax. I nice piece of unbiased reporting then!!
The fact remains that mutually owned building societies have a much superior culture i.e. a culture that is focused totally on providing great service and deals for members, whereas banks have to maximise profit for shareholders by treating customers as sources of income, which leads to the culture where banks go too far and get too greedy and hence all the banking scandals.
It is very simple really, do you want to deal with institutions whose only role is to work in your best interests or institutions where your needs are secondary to corporate greed?
This 'article' is weak attempt and will only appeal to customers who put greed before principle and therefore are happy to deal with their own kind.
Bad as each other, put a cheque in after certain time weekday or weekend, wont start clearing process of 5 days until next working day, 5 days to clear a piece of paper, this is 2012, and not the 1600s
NO THERE NOT BECAUSE THEY ARE OWNED BY BANKS ie HALIFAX WAS MINE NOW
LlOYDS TSB AND WE KNOW WHAT HAPPENED THERE CROOKS
Big error in article! - not all building societies are owned by the customers! - only the "mutual" building societies are owned by the customers - the other building societies are owned by shareholders, just as with banks. MSN should really use writers who know about a subject to write the articles on it, or at least get its writers to do careful research before writing articles!
For years my family banked with Trustee Savings Bank (TSB) but when they give up their 'small bank' status we all moved to the Halifax Buidling Society. Halifax was OK for while but then steadily went downhill and when it was merged into HBOS customer service became non-existent so the accounts went to Nationwide.
Sadly, Nationwide has also gone down the toilet over the past couple of years. I'm not sure how financial sound they are but the closure of numerous very busy smaller branches isn't exactly re-assuring. There are things you can't do over the phone or on their internet banking system and suddenly forcing loyal customers to make an extra 20-mile or longer round trip to visit the nearest branch isn't exactly the best way to keep people happy.
I'm now with Santander (the old Abbey National) and keeping my fingers crossed the good service I've had from them so far will continue.
As for the rest of them? In the past I've used business accounts with Lloyds, Barclays and NatWest - they are all just money-grabbing b*****ds looking for any excuse to hit you with charges. Barclays continued to deduct monthly loan insurance premiums (this was long before PPI) from my account even though they were paying out on the cover after an accident stopped me working for six months. NatWest cancelled an overdraft agreement without telling me then charged for writing the letter that said I was overdrawn.
I would not trust money with either Banks or Building Societies..
FRIENDS LIFE ( formerly Friends Provident) virtually promised a return of £28K on my endowment mortgage.
Surprise surprise now that mortgage is nearing the end the return is likely to be less than half - approximately £13K.
I have written to FRIENDS LIFE and to cut a long story short their response is basically 'tough luck'.The man hours they spent (including a letter from the Director) dreaming up excuses for their poor performance could have contributed to some financial recompense. Poor returns are blamed on a poor performing market. It's very strange, however, that the poor performing market did not appear to disrupt their constant flow of bonuses.
Beware of all financial institutions especially FRIENDS LIFE. ( NO wonder they changed their name).
Who do you think pays for all their profits and bonuses?
Perhaps if they reduced their take of the profits then they could honour their promises and deliver a fair service.
At the moment they are a law unto themselves. They milk the profits when the going is good and when there is a downturn in the market they can rely upon the taxpayer to bail them out.
People in the real world have to contend with realities of economics. If you fail to perform you don't get paid bonuses.
Come on you bankers (rhyming slang) try to survive on your six figure salaries and stop writing yourselves bonus cheques that the rest of us have to pay!
What a surprise.
All the news and you can only comment on this-shame on you MSN.
Mitt romney -what a n00b.
what next? same-sex marriage for under12's?
What a sick society!Banks kiss your money goodbye.
When it comes to credit cards the comparisons are interesting too - note that it's all about cashback and balance transfers not what the average consumer might pay for an ongoing credit card rate. A quick scout around the Nationwide and Barclaycard websites reveals that for those with an 'average' credit rating that the rate after the initial 0% period for a Barclaycard Gold Card is 19.9% while for the Nationwide credit card it is 15.9%. That's roughly a 20% difference... and perhaps where Barclaycard makes the money to be able to offer it's introductory deals in the first place?
While the article pushes bank products perhaps the author would have supported this argument more effectively if they actually compared equivalent products rather than cherry picking and comparing those likely to appeal to different consumers or which are only available as short-term deals in order to make their point.
Amazing to me that people still buy financial "products" of any sort. Recent history shows they don't perform & many people would have been better off just spending the money. Add to that 3, 4 or even 5 years lock-in when you're expected to keep paying in or lose & I'd say forget it.
We had a life insurance for 20 years which we struggled to pay & would have preferred to spend the money on our kids. It produced less than an instant access savings account. I'm told this was one of the better performing ones! Better I suppose than my mother who invested with one of the big 4 banks who assisted a fraudster to (legally) steal all her savings so we had to pay her debts when she died.
The moral? AVOID AT ALL COSTS!
I worked for four or five in my time and found them all as bad as banks, certainly in the later years
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