Savings accounts: banks versus building societies?

20 March 2009

Banks are now offering more competitive deals than their building society counterparts, with interest rates at the latter taking a hit from the historically low Bank of England base rate.

New research shows that mutuals no longer lead the way when it comes to savings deals. Last year, over a million savings accounts were opened with building societies, according to the Building Societies Association, as the financial crisis within the banking sector prompted a ‘flight to quality’ from savers. Competition deals from smaller organisations also tempted people away from PLCs.

However, new research from data provider Moneyfacts, shows that societies no longer lead the way when it comes to savings rates with banks taking over the mantle.

The average rate on cash ISAs is currently 2.25% among banks, compared to the average rate of 1.98% offered by building societies. Likewise, instant access deals pay, on average, 1.01% across the banking sector but just 0.76% across societies. And banks also lead the way with notice accounts paying an average rate of 1.3% compared to 0.98%.

The only product societies continue to lead on is fixed-rate deals; Moneyfacts reports that the average interest rate on building society fixed bond offerings is 2.98% compared to 2.71% offered by banks.

Michelle Slade, analyst at, says: “Banks have come in for plenty of criticism in the last 18 months, but overall they are offering the best deals to their customers.”

So, are banks really the best home for your savings or do building societies still have something to offer?

Although banks lead the way on average savings rates, they lose out when it comes to fixed-rate deals with societies on average offering better returns. Fixed-rate accounts have been extremely popular in the past six months, as savers looked to lock away lump sums with ‘safe’ institutions and attempted to dodge the sharp fall in interest rates.

At the same time, while societies no longer offer the best overall range of savings products, they do offer 60% of best-buy deals, according to Moneyfacts.

When it comes to picking a savings account, the type of institution you opt for might be a consideration – many people prefer banking with building societies because of their mutual status and tendency to offer consistently good rates. Plus, it is worth bearing in mind that, unlike banks, no building society has failed in the current financial climate.

Fixed rate best-buys: banks versus building societies

Bank AER Deposit Term
Web Saver
4.1% £500 Five-year bond
Savings bond
4.01% £30,000 Two-year bond
4.1% £1,000 24-month bond
Close Brothers 4.3% £10,000 Two-year bond
Telephone bond
3.75% £500 11-month bond


Building society AER Deposit Term
Nationwide 4.15% £1 Five-year bond
West Bromwich
e Bond
4.05% £5,000 Until 30/04/2011
Manchester 4.03% £1,000

Until 30/04/2012

Coventry 3% £1 Two-year bond
Nationwide 3.05% - 3.35% £1 - £50,000 One-year bond

Instant access best-buys: banks versus building societies

Bank AER Deposit
Internet Saver
2.56% £1
Anglo Irish Bank
Easy Access
2% £1


Building Society AER Deposit
Manchester Building Society
Premier Guarantee
2.66% £1,000
Barnsley Building Society
2.75% £1

Cash ISA best-buys: banks versus building societies

Bank AER Deposit
Golden ISA
3.61% (v) £1
Cash ISA Plus
3.51% (v) £1
Four-year fixed ISA
3.35% (f) £500
Marks & Spencer
Advantage ISA
3.1% (v) £100

Key: f = fixed-rate v = variable-rate

Building Society AER Deposit
Leeds Building Society
Five-year fixed rate ISA
3.5% (f) £1
Manchester Building Society
Cash ISA fixed until 30 April 2012
3.31% (f) £1,000
National Counties
Guaranteed Cash (from 6 April 2009)
3.26% (v) £1
Reward ISA
3% (v) £500

Key: f = fixed-rate v = variable-rate

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