Mutual Savings Bank (MSB)

What Is a Mutual Savings Bank (MSB)?

A mutual savings bank is a type of thrift institution originally designed to serve low-income individuals. Historically, these individuals invested in long-term, fixed-rate assets, such as mortgages.

Most MSBs had primary locations in the Mid-Atlantic and industrial Northeast regions of the United States. By 1910, there were 637 of these institutions.

Key Takeaways

  • Mutual savings banks (MSBs) deposits are insured by the Federal Deposit Insurance Corporation (FDIC).
  • Mutual savings banks allow customers to maintain accounts with low balances while earning interest.
  • If you open an account with a mutual savings bank, you are considered an “owner” in the bank, as mutual savings banks do not have outside shareholders like traditional banks.
  • Initiated in 1816, the first mutual savings banks (MSBs) were the Philadelphia Saving Society and Boston's Provident Institution for Saving.
  • The first philanthropic individuals in Philadelphia who established the first mutual savings banks also started the first hospitals, orphanages, and shelters on the eastern seaboard of the US.
  • There are several advantages of mutual savings banks include friendly customer service, a long-term approach, financial stability, depositor safety, increased accessibility, and the fact that profits (in some form or another) are reinvested in the community.
  • Mutual savings banks also have several disadvantages including being too conservative at times, having no member control, and having the possibility of being acquired or going public.
  • While mutual savings banks function to generate profits for their member shareholders, credit unions operate as not-for-profit organizations, designed to serve their members, who also are de facto owners.

Understanding a Mutual Savings Bank (MSB)

Mutual savings banks were largely successful until the 1970s. Specifically, regulations brought in during the 1980s.

Although a mortgage is usually a contract between a borrower and lender, mortgages can be pooled together and become available for investment by outside parties.

Mutual savings banks are chartered by local or regional governments and do not offer capital stock, but rather the bank is owned by its members, and any profits are shared among its members.

History of Mutual Savings Banks (MSBs)

Initiated in 1816, the first mutual savings banks (MSBs) were the Philadelphia Saving Society and Boston's Provident Institution for Saving. The intention of MSBs was to provide credit to people that were largely being overlooked by the established banking system at the time.

The term "mutuality" actually comes from the 1800s, a time when some wealthy individuals made it a point to even out the playing field for citizens as the country changed rapidly. The first philanthropic individuals in Philadelphia who established the first mutual savings banks also started the first hospitals, orphanages, and shelters on the eastern seaboard of the US.

In fact, the main intent of the first mutual savings banks was not to earn a profit for its founders. The objective, instead, was to create an entity where earnings would flow through directly to its depositors. Moreover, interest not paid to depositors was held back as "retained earnings."

Retained earnings served one main benefit: during times of financial stress, depositors' principal would be able to be returned on demand.

Much of those established principles stand today.

MSBs were generally very successful until the 1970s. During the 1980s, regulations governing what MSBs could invest in, along with what rate of interest they could pay to customers, combined with rising interest rates, caused MSBs massive losses. Consequently, many MSBs failed in the 1980s; others merged, became commercial banks, or converted to stock form.

MSBs traditionally invested in mortgages. Individuals and businesses will use mortgages to make large real estate purchases without paying the entire value of the upfront. Fixed-rate mortgages (also called a “traditional" mortgage) adjustable-rate mortgages (ARM) exist.

Mutual savings banks are generally organized under what's called the "trustee system." It is this particular feature that separates them from cooperative banks. With co-operative banks, the customers are the owners. But with mutual savings banks, its relationship with depositors is that of debtor and creditor, requiring the need of a "trustee" to govern the bank's operations without profiting themselves. 

In modern society, mutual savings banks have adjusted to fierce competition quite well. Specifically, they've offered customers a wider array of products and services through affiliated financial institutions. For example, a great number of mutual savings banks now offer financial services such as fixed income and equity investments, insurance, financial planning, estate planning, and trust services in addition to everyday banking.

The banking industry has undergone tremendous and rapid change over the past century. Mutual savings banks continue to offer stable and reliable community banking.

That said, the influence of technology continues to introduce headaches for mutual savings banks. Increasingly, banking has become more technologically based. In order to stay relevant, mutual savings banks needed to invest heavily in things like IT banking infrastructure, cybersecurity, and online app development.

Because of slimming margins and a lack of scale (relative to large multinational shareholder-owned banks), it's difficult for mutual savings banks to invest heavily in financial technology. Instead, mutual savings banks increasingly need to merge in order to gain access to or finance the technology infrastructure.

Advantages and Disadvantages of Mutual Savings Banks (MSBs)

There are several advantages and disadvantages to going with mutual savings banks. Let's first take a look at the advantages.


  1. Financial stability: Generally speaking, mutual savings banks are better capitalized and operate more conservatively than the average public bank. In fact, mutual savings banks were among the few banks that survived the Great Depression because of their refusal to take on too much risk.
  2. Customer service: Since being a depositor also means you're an owner, it's only natural that mutual savings banks have a more "eager to please" approach when it comes to customer service. There's no way around it: the success of the bank is dependent on its creditors' satisfaction and success.
  3. Depositor safety: Mutual savings banks are typically chartered by state or federal bodies. For example, mutual savings banks are insured by the Federal Deposit Insurance Corporation (FDIC). And as mentioned earlier, mutual savings banks are generally more careful about their investments in order to protect the investment interests of depositors. Because of that, mutual savings banks are able to weather financial strife far better than traditional banks.
  4. Long-term outlook: Mutual savings banks aren't owned by shareholders, who typically require profits to grow every single year. Thus, by nature, mutual savings banks are able to take a long-term approach to business. Instead of trying to meet strict earnings estimates, mutual savings banks are able to build longer-term, more fruitful relationships with the community and provide more flexible solutions.
  5. Profits stay within the community: The interest profits on loans are usually returned to the community in some form or another. One way is that depositors are given lower rates on loans and higher rates on deposits. And another way is simply through donations to community schools, charitable causes, and local events.
  6. Accessibility: Members can typically walk into a mutual savings bank at any time and get financial advice from financial experts.


Of course, there are also a few disadvantages of mutual savings banks. They include:

  1. Sometimes too conservative: While being on the conservative side certainly helps the financial stability of mutual savings banks, it can hurt the investment performance of depositor funds. Specifically, manager compensation is generally tied to the financial health of the mutual savings bank, giving managers an incentive to invest as conservatively as possible even when taking on a bit more risk would make sense fiscally.
  2. No member control: Mutual savings banks are mutual associations, meaning they are owned, but not controlled, by depositors. Instead, control goes to a board of trustees that often remains the same for years. The board self governs and answers to no one. Depositors have no direct voting power. Their only mechanism for influence is basically to take their deposits elsewhere.
  3. Risk of stock conversion: There are many advantages to going with a community-based, ultra-conservative mutual savings bank. That said, many mutual savings banks are steadily converting to shareholder-owned banks. In the process, they're often issuing stock through an initial public offering (IPO). Thus, there is a growing risk that your mutual savings bank may be acquired by a larger corporate bank or even go public.
Advantages of Mutual Savings Banks (MSBs)
  • Financial stability

  • Solid customer service

  • Depositor safety

  • Long-term oriented outlook

  • Profits stay within community

  • Accessibility

Disadvantages of Mutual Savings Banks (MSBs)
  • Sometimes too conservative

  • No member control

  • Risk of being acquired or going public

Mutual Savings Banks vs. Credit Unions

Like mutual savings banks, credit unions were another form of financial institution outside of a traditional commercial bank. While credit unions and mutual savings banks offer generally similar services (e.g., accepting deposits, lending money, and selling financial products such as credit and debit cards and certificates of deposit or CDs), there are key structural differences.

These differences largely surround how the two types of institutions generate income. While mutual savings banks function to generate profits for their member shareholders, credit unions operate as not-for-profit organizations, designed to serve their members, who also are de facto owners.

Members of credit unions will pool their money (i.e., purchase shares in the cooperative); these funds allow members to then provide loans, demand deposit accounts, and other financial products and services to one another.

Most credit unions are significantly smaller than retail banks. They usually focus on serving a particular region, industry, or group. For example, the Navy Federal Credit Union (NFCU) has 300 branches, largely near military bases, and is the largest credit union by asset size in the U.S. and is open to members of the military.

As of March 31, 2021, total assets in federally insured credit unions stood at $1.95 trillion.

Special Considerations

Commercial banks make money by charging interest income on loans they provide to customers. Customer deposits, such as checking and money market accounts, provide banks with the capital to make loans in the first place. The interest rate the bank charges for what it lends tends to be greater than what it pays on deposits.

Mutual Savings Bank FAQs

Did Mutual Savings Banks Cause the Last Financial Crisis?

The 2008 financial crisis was caused by several factors including low lending standards, the rise of mortgage-backed securities, and rampant real estate speculation. The most significant failures were those of Wall Street investment banks, not necessarily mutual savings banks.

Generally speaking, mutual savings banks stick to basic everyday banking services required by a community. In other words, mutual savings banks typically provide retail services, checking and savings products, home loans, auto loans, and other loans for both individuals and small businesses.

What Is the Difference Between a Mutual Savings Bank and a Public Bank?

A mutual savings bank is owned by its depositors while a public bank is owned by shareholders.

What Is the Difference Between a Mutual Savings Bank and a Mutual Holding Company?

A mutual savings bank is owned by its depositors. A mutual holding company, meanwhile, is created when a mutual company (such as a mutual savings bank or mutual insurance company) converts to a parent company. For owners of the original mutual company, it typically means exchanging mutual rights for stock ownership.

Article Sources
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  1. National Credit Union Administration. "Quarterly Credit Union Data Summary 2021 Q1." Accessed June 21, 2021.