Building societies offer better rates than banks

Written by Rebecca O'Connor on 20th March 2017

Building societies pay savers better interest rates than banks, according to new research.

The new findings, from a study by the Building Societies Association (BSA), found  that savers with building societies received an average of 1.58% on fixed rate and notice accounts in 2016, compared to an average of 1.3% in the Bank of England statistics.

For instant access accounts, savers with building societies received an average rate of 0.88% in 2016, compared to 0.65% in the Bank of England data.

The figures cover all outstanding balances, so include existing accounts as well as new business and therefore indicate the relative long-term value offered by different providers, and will serve as further evidence that mutual organisations such as building societies – those that are owned by member customers rather than shareholders, are more likely to act in the best interests of customers than Plcs.

Building societies, which have their roots in local communities, also tend to do more to support their local area and the environment than their larger, shareholder owned counterparts.

The research comes amid greater scrutiny of the fairness of savings rates.

The FairLife Mark, a charity that offers a kitemark to savings products that offer “fair” rates that do not, for instance, drop dramatically at the end of a promotional term, is working to encourage all providers to adopt its recommendations for a fair industry standard.Savings providers have for years enticed people with headline best-buy rates, then profited when the saver fails to move their money when the introductory period ends.

In the mortgage market, building societies have grown their share of new lending considerably in recent years, and offer competitive rates to borrowers. As a result, the gap, or spread, between mortgage and savings rates was much narrower at building societies than at other providers.

Robin Fieth, Chief Executive of the BSA, said: “These results demonstrate that savers with building societies get a better deal on cash savings. This includes accounts closed to new deposits, showing that at a time of low interest rates across the market societies have looked after their loyal savers by providing value over the long-term.

“The figures also indicate an important difference that comes from being owned by customers, not external shareholders. Building societies exist for the benefit of their customers, who are also members.  They do not have to pay dividends to shareholders and are therefore able to give more back directly in terms of better deals.  It is one of the ways that mutuality is a tangible benefit to consumers.”