Most adults keep their savings with a high street bank, even though building societies pay more interest and are perceived more positively, new research has found.
The research carried out by Yorkshire Building Society found that more than half (55%) of people have their main savings account with a traditional bank, compared to less than a quarter (23%) who use a building society.
The Society calculates that the UK population could have earned an additional £94 billion last year, or an extra £547 each, had savings been held with them instead of a bank. The mutual paid an average savings rate of 3.43% over 2023, 41% higher than the market average.
Yorkshire Building Society’s research also found that 57% of people have a mortgage with a bank, compared to 36% with a building society. The gap was wider among 18-34 year-olds - 32% said they had a mortgage with a building society and 63% with a bank, while over 55s were slightly more likely to have a mortgage with a building society (43%) than with a bank (42%).
If younger generations are overlooking building societies – typically more likely to offer mortgages aimed at helping first-time buyers – they could be pushing the dream of home ownership further out of reach.
Yorkshire Building Society’s £5k Deposit Mortgage – which allows people to buy a home worth up to £500,000 with a deposit of just £5,000 – is aimed at enabling aspiring homebuyers to save a deposit in around two years, no matter where they are in the country. In contrast, the time needed to save a 5% deposit, the minimum amount required by many other lenders, is between three and eight years depending on location.
Most (80%) of 18-34 year-olds thought they would need to find a deposit of at least £10,000 to buy a house.
The research also found that building societies are perceived more positively than traditional banks on many measures, with respondents being more likely to agree that building societies are trustworthy and reliable (36% vs. 32%), provide good customer service (30% vs. 24%) and offer competitive rates and benefits (27% vs. 20%).
The greatest differences in perceptions between building societies and banks are around providing value for money (23% vs. 14%), having a strong community focus (21% vs. 6%) and prioritising customers over profits (21% vs. 5%).
Younger people are more likely to regard a bank or building society’s values as important, with more than half of under 35s (57%) saying it was very or somewhat important that the institution shares their values, compared to 42% of over 55s.
One explanation for customers continuing to choose banks may be that there is poor understanding of what makes building societies different, especially among younger people. Building societies are mutuals, which means they are owned by their members and reinvest profits in their interest, rather than paying out to external shareholders.
When asked if they had heard of the term “mutuality”, 65% of respondents said they had, though over 55s were much more likely to be aware (74%) than 18-34s (54%). However, less than half of those aware of the term were able to define it correctly.
Yorkshire Building Society recently launched a campaign aimed at raising awareness of what makes building societies different and how profits are reinvested to benefit customers.
Tom Simpson, interim chief commercial officer at Yorkshire Building Society, said:
“Building societies are punching above our weight in many ways – we’re paying more in interest and we’re doing more to help people buy homes.
“There is a lot of competition out there, with new banks and financial technology companies emerging all the time. Yorkshire Building Society has been around for 160 years and we want to share the story of our commitment to our members and our communities with even more people, especially younger generations.
“We’re determined to continue to do what is best for our customers so they stay with us and we’re always working hard to show people the benefits of being with a building society.”
