Building Society Accounts

Building society accounts come in two forms, share accounts and deposits.

With a building society deposit account, if the building society goes bust you will receive your money back before shareholders receive a penny. Deposits are generally considered to be safe, as it is very rare that a building society gets into financial dificulty.

It is important that you understand the distinction between deposits and share accounts. Building societies are mutual societies, which means that they are owned by their members (people who have share accounts).

Share accounts are almost the equivalent of shares in a limited company, in that it is the shareholders who lose first if a building society has financial problems. The risk level is not, however, as high as holding shares in a limited company, since the assets of a building society are largely mortgages on residential property.

In the event that a building society goes bust, even a deposit may not be fully protected. There are limits on the amount that you may receive back, and details of these limits can be viewed on the Financial Services Compensation Scheme website at at www.fscs.org.uk.

Building society accounts are an excellent place for money needed for the short term (under five years) and for an emergency fund.

The interest that you earn may be little more than the inflation rate, and if you choose unwisely it may be less than inflation. There is, therefore, the risk that the value of your savings held in building society accounts could be eroded by inflation as the years ago by. And if you're drawing the interest out, the value of your savings will definitely be eroded by inflation.

If you hold significant amounts in building societies for lengthy periods, there is a significant risk that you will not do as well as if you had invested in investment plans that carry a degree of risk.

For help in choosing suitable savings and investments, please contact us.