A mutual society is run in the interests of its members, the savers and borrowers - and is not listed on the stock market or owned externally.

 

The key advantage of this over a stock market listed or 'plc' bank is that a mutual does not have to pay dividends to its shareholders. This means that the surplus or profit a society makes can be put back into the organisation to benefit its members, through interest rates which are higher for savers and lower for borrowers, and through better services.

 

Evidence from the annual reports of banks which were previously building societies shows that the extra cost of paying dividends to shareholders, who are not always the bank's customers, raises their running costs by around 35%. As banks make their money from their customers, it is they who are paying the increased prices that result.

 

A building society's board of directors in effect act as trustees, holding the society's assets in trust so that future members also have access to cheap mortgages and attractive savings accounts.