Aren members better off with a mutual Building Society in the long-run?
A. The common argument for this is that, because societies don’t have to pay dividends, they can pass this onto members instead in the form of better savings and mortgage rates. Currently, it is true that some societies offer better rates than traditional banks. But for savers and most borrowers it would take many years to earn the equivalent of a windfall in increased interest. And all this assumes that societies will maintain this advantage. The fact is that societies are starting to lose the savings war (note the entry of new competitors such as Egg and Virgin Direct) and people will increasingly look to equity investments rather than deposit accounts as long term interest rates fall. The ‘dividends’ argument is irrelevant. The size, flexibility and technology of organisations will determine who offers the best rates in the future. Building Societies, with their expensive branch networks and regulatory constraints, are not well-placed to compete in tomorrow’s financial marketplace.
