Savings & Loan Companies vs. Commercial Banks: What's the Difference?

Savings and loan institutions–also referred to as S&Ls, thrift banks, savings banks, or savings institutions–provide many of the same services to customers as commercial banks, including deposits, loans, mortgages, checks, and debit cards. However, S&Ls place a stronger emphasis on residential mortgages, whereas commercial banks tend to concentrate on working with large businesses and on unsecured credit services (such as credit cards).

Commercial banks can be chartered at either the state or federal level. The same is true for S&Ls. The Office of the Comptroller of the Currency (OCC) is in charge of monitoring all nationally-chartered commercial banks and S&Ls.

Key Takeaways

  • Savings and loan institutions–also referred to as S&Ls, thrift banks, savings banks, or savings institutions–provide many of the same services to customers as commercial banks, including deposits, loans, mortgages, checks, and debit cards.
  • S&Ls were originally created to provide more economic opportunities, like home loans, available to more Americans (specifically, members of the middle-class).
  • Many commercial banks conduct many of their operations exclusively online.
  • Some rules for lending differ between S&Ls and commercial banks, although a ruling by the Office of the Comptroller of the Currency (OCC) in 2019 provided more flexibility to the lending practices of S&Ls.
  • Historically, S&Ls have been private entities and mutually owned by their customers; however, some are publically-traded companies. 
Savings & Loan Companies vs. Commercial Banks

Investopedia / Hilary Allison

Commercial Banks

Commercial banks are owned and managed by a board of directors selected by stockholders. Many commercial banks are large, multinational corporations.

There were 691 savings and loan companies insured by the FDIC as of the end of 2018.

In contrast to the S&L's narrower focus on residential mortgages, commercial banks typically provide a broader range of financial offerings, often including credit cards, wealth management, and investment banking services. Although commercial banks provide residential mortgages, they tend to focus on loans targeting the construction and expansion needs of regional, national, and international businesses.

In the electronic era, many customers utilize commercial bank services online. However, in the past, brick-and-mortar commercial banks often offered personalized customer service via a teller or bank manager and offered customers services like ATMs and safe deposit boxes. Some branches of these commercial banks even offered amenities to their customers, like providing coffee or water to waiting customers.

Savings & Loan Companies

The original purpose of S&Ls was to enable more middle-class Americans to buy their own homes by providing more affordable mortgage options. In the 21st century, these institutions continue to focus on this service, but also offer checking and savings accounts. In this respect, they are similar to commercial banks.

S&Ls are owned and chartered differently than commercial banks. More of their customer-base tends to be locally-drawn. S&Ls can be owned in either of two ways. Under what is known as the mutual ownership model, an S&L can be owned by its depositors and borrowers. Alternatively, an S&L can also be established by a consortium of shareholders that have controlling stock ownership (as issued in an S&L's charter).

By law, S&Ls were previously subject to some limitations that commercial banks were not subject to. However, a final ruling by the OCC–the governing body of S&Ls and thrift banks–issued on May 24, 2019, and effective on July 1, 2019, has the power to change some of these limitations and give S&Ls more operating flexibility.

This ruling put into effect a provision that allows for S&Ls and thrift banks that are insured by the Federal Deposit Insurance Corporation (FDIC) to elect to operate as covered savings associations. This will give federal savings associations the ability to operate with national bank powers (without amending their original charters). In other words, S&Ls and thrift banks may choose to operate in the majority of activities that are permissible for national commercial banks.

Prior to this ruling, S&Ls could only lend up to 20% of their assets for commercial loans, and only half of that can be used for small business loans. In addition, for Federal Home Loan Bank borrowing approvals, an S&L was required to show that 65% of its assets were invested in residential mortgages and other consumer-related assets.

As a result of this provision, eligible S&Ls may have these restrictions lifted.

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  2. Federal Reserve History. “Savings and Loans Crisis.”

  3. Office of the Comptroller of the Currency. “Community Investment Act.” Federal Register, vol. 87, no 107, June 2022, pp. 33887-33888.

  4. Federal Deposit Insurance Corporation. “Quarterly Banking Profile: Fourth Quarter 2018.” Federal Deposit Insurance Corporation, vol. 13, no 1, 2019, Page 5.

  5. Cornell Law School. “Savings and Loans.”

  6. Federal Register. “Covered Savings Associations.”

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  8. Thomson Reuters Practical Law. “Glossary: Thrift.”

  9. Office of the Comptroller of the Currency. "Covered Savings Associations Implementation: Covered Savings Associations."