Below Simon Cadbury, Director of Strategy and Innovation at Intelligent Environments, answers a question many have been asking themselves for years now, what is the actual difference between a building society and your regular bank?
Becoming an adult is an important moment for anyone. However, it’s perhaps now significantly less so for the millennial generation, a demographic that views travelling abroad as their biggest priority ahead of home ownership, buying a car, and even paying off debt.
In fact, recent research has also found that most millennials only see themselves as an adult once they have turned 30 years old, with some even agreeing that 40 is a more reasonable estimate.
And this delay in ‘becoming an adult’ is having a significant impact on this generation’s knowledge of financial planning – frequently resulting in a lack of clarity when it comes to getting the best deal in the retail banking sector.
The Building Society Enigma
Building Societies are one example of organisations that remain a mystery to millennials. Our research, which surveyed 2,000 UK millennials on their attitudes towards the building society sector, discovered that very few knew the benefits of opening a building society account.
Worryingly, just under half (48%) were unable to name a single advantage, with a third (33%) agreeing that they could see no reason to use a building society.
Part of this uncertainty lies with millennials’ confusion around the difference between a building society and a bank. Around three-quarters (73%) admitted that they did not know the difference between the two, while nearly half (45%) unsure of when or in what circumstance they’d use a building society instead of a high street bank.
So, what exactly is the difference? Key to understanding the distinction between banks and building societies is to be clear on exactly how, and for who, they operate. Because banks are listed on the stock market, they are businesses and therefore work in the favour of those who invest in them, specifically their shareholders. Building societies, however, are not commercial businesses, they are ‘mutual institutions’ – owned by, and working for, their customers.
As a result, building societies’ interest rates generally tend to be a lot higher than banks as they are not required to pay dividends to any shareholders. In fact, upon learning of this community-focused and member-ownership aspect, over a quarter (27%) of the millennials surveyed noted this as a real advantage.
Whilst building societies do focus more on financial products like savings and mortgages, they are still able to offer the same services that banks provide, such as current accounts, for example. However, with the exception of Nationwide, building societies’ services are only available on a regional basis, which is clearly a factor that significantly influences a generation always on the move.
Nevertheless, for those millennials who are settled in one place and like the community focus that building societies offer, there should be every reason for building societies to be considered as an alternative to banks. And really, like most things in life, the choice should be focused on which provider is giving the best customer experience – not on whether the provider is a bank or building society.
Clearly, more needs to be done to educate millennials on building societies, and part of this responsibility should fall on the sector itself. To effectively engage a demographic that has grown up in the digital age, surrounded by technology and the internet, more needs to be done to move away from the traditional model. It should be a priority for building societies to better meet these expectations by providing more engaging digital tools, improving both their internet and mobile offerings. The building society should no longer be seen as a forgotten institution, but one that is considered alongside banks – and that can offer financial products just the same as its business-minded brother.