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Bank or Building Society?

By: Jennifer Lowe - Updated: 27 Aug 2012 | comments*Discuss
 
Northern Rock Banks Building Societies

With the recent market turmoil, banks and building societies are battling harder than ever for your custom.

Entrusting your hard earned cash with either a bank or a building society is a big step. The relationship between a customer and their bank is a very close one, and many feel that switching to another provider is a betrayal.

This is why most of us go to our current provider when we are looking for a new financial product and it doesn't occur to us that there might be a better deal being offered elsewhere.

Over the years banks have received a substantial amount of negative press. This is basically because their reliance on paying shareholders dividends, meaning that they must meet the required annual profit margins.

However, despite this, there are a very wide range of competitive products provided by banks, from current accounts to specialised business services.

The other option are building societies. These are mutual organisations, which means that they are owned by their members. This, more often than not, gives customers confidence because their building societies are working for them and only them.

Rising Interest Rates

In the wake of the credit crunch, the financial market has become a very unsure placed. Interest rates have been cut by the Bank of England in a bid to ease inflation and this has an effect on your ability to borrow money.

The main difference, and some may argue the greatest advantage, is that building societies don't have to pay dividends to shareholders and many believe that, as a result of this, they offer better value for their members across all their products.

Reliable Advice

The latest figures reveal that more than 26 million adults in the UK prefer to get financial advice from their bank or building society, despite the fact that they are bound to be bias towards their own products.

This comes ahead of family, friends and even independent financial advisers, who all have your best interests in mind when departing their knowledge.

Northern Rock

The problems experienced by Northern rock caused widespread panic amongst many savers, with many queuing outside branches to withdraw their money from their account.

This was very significant and revealed just how little people know about what protection is offered once they have trusted a bank or building society to look after their life savings.

The FSA regulates the industry and it is this body that offers the consumer protection if a bank or building society should have problems. Basically they cover up to £35,000 under the Financial Compensation Scheme.

Banks vs Building Societies

On paper, it may appear that building societies are the better option for savers and borrowers. However, on closer inspection neither of them are as good as they seem.

It was only last year, in February 2007, that Nationwide Building Society was fined £1 million by the Financial Services Authority (FSA) as a result of the theft of a laptop from the home of an employee which contained important information.

It doesn't matter how much we analyse which of the two are the best, ultimately it is down to what suits your needs and circumstances. There are so many products on the market at the moment so it is important that you shop around for the best deal before you sign an agreement with a financial provider - bank, building society or otherwise.

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