DEFINITION of Building Society
A building society is a type of financial institution that provides banking and other financial services to its members. Building societies resemble credit unions in the U.S. in that they are owned entirely by their members. These societies offer mortgages and demand-deposit accounts. Insurance companies are often major supporters.
BREAKING DOWN Building Society
Groups of co-op savers in the building trades first introduced the term "Building society" in 19th-century England. These institutions are now major competitors of banks in the U.K. and are the equivalent of U.S. savings and loan institutions. Building societies can also be found in other countries, such as Australia, Ireland and Jamaica.
Building societies have a particular focus on savings and mortgage lending. Mortgage lending is the act of lending a debt instrument that a specified real estate property secures in the form of collateral. A borrower is obliged to pay back this collateral with a predetermined set of payments. Mortgages can help individuals and businesses, who buy into a building society, make large real estate purchases without paying its entire value up front. Over a period of several years, the borrower will repay the loan for the property, plus interest, until he or she eventually owns it free and clear.
Mortgages are also known as "liens against property" or "claims on property." If the borrower stops paying the mortgage, the building society may foreclose on it.
Building Society Versus Credit Union
Members entirely own both building societies and credit unions in the United States. More specifically, credit unions can range in size from small, volunteer-only operations to entities with thousands of participants. Large corporations, organizations, and other entities may form credit unions for their employees and members.
Most credit unions follow the basic business model of members pooling their money via purchasing shares in the cooperative. In exchange, they receive the ability to request loans, open demand deposit accounts, and obtain other financial products and services among each other. Any income generated generally goes towards funding projects and services that will benefit the community and interests of its members.
In some cases, credit unions can be at a disadvantage to larger banking institutions if they have fewer brick-and-mortar locations to service clients who like to transact in-person. Most credit unions will offer online banking and auto-bill pay but occasionally not at the level of T.D. Bank, for example (one of the big six banks in Canada).