What is a Savings and Loan Institution

A savings and loan institution is one that offers both the financial services of savings deposits and mortgage loans. In the UK and Commonwealth such institutions are typically called building societies.

They are similar in some respects to a credit union, with members, depositors and borrowers. They vote on major financial decisions of the company on a one-member one-vote system.

The first savings and loan institutions were formed in the early nineteenth century, with the first savings bank in the US being the Philadelphia Savings Fund Society, formed in 1816. In the UK, the building societies began in the 1770s. The original Building Society, from where the term derives, was formed in Birmingham, England, in 1774.

In the 1980s there was a crisis in savings and loans with over 1000 such institutions in the USA failing at the loss of $150 billion. The government subsidized all but $25 billion of this, causing the significant budget deficits of the 1990s.

Like credit unions, savings and loan institutions can have certain advantages over ordinary commercial banks in that they can offer lower interest rates on borrowing and higher returns on savings. Although they used to specialize in the savings and loans services they have now broadened their services to sometimes offer checking accounts, for example. So like with other previously specialized financial services institutions the boundaries are increasingly blurring.