Page last updated at 14:33 GMT, Wednesday, 21 September 2005 15:33 UK

Banks and building societies

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Building Societies are resisting moves to turn them into banks

BBC News explains the key differences between banks and building societies

Banks are normally companies listed on the stock market and are therefore owned by, and run for, their shareholders.

As a result of not having to pay dividends to shareholders, building societies claim that they have historically offered higher rates of interest to savers and cheaper mortgages.

Building societies were set up as mutual institutions, which means that those with accounts become members and have certain rights to vote on issues affecting the society. Each member has one vote regardless of the amount they have saved or borrowed.

Traditionally they would only lend within their catchment area, but local societies have become more flexible to appeal to those who wish to save or borrow from them.

When it comes to choosing a building society there is no need to just look at those in your area, many will lend or accept deposits from those outside and also offer such services as postal, telephone and internet accounts.

When two become one

There has been monumental change in the market over the past decade and now, as far as savers are concerned, there is very little practical difference between banks and building societies.

Many building societies have thrown off their mutual status, offering their members shares or a lump sum bonus in return.

The process of building societies morphing into banks is called de-mutualisation.

Some groups of building society savers have been trying to get these traditional institutions to turn into banks in the hope of securing a windfall.

Some commentators have suggested that the days of building societies are numbered and that they will all have de-mutualised within a few years.

Competition means that banks now offer deals that can equal or beat what is on offer from building societies. Likewise, traditionally banks would offer current accounts, but these days most building societies offer them as well.

Many savings accounts can be opened through organisations such as retailers and large supermarkets as well, although in fact these are usually offered in partnership with a bank or building society.

However, building societies such as the Nationwide are holding their own on the High Street, suggesting that the days of the mutual are not numbered.

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