What Do You Need To Know About Thrift Banks? – Here’s Everything

Tolu Gabriel
Tolu Gabriel March 21, 2022
Updated 2022/03/21 at 7:20 PM
What Do You Need To Know About Thrift Banks? – Here's Everything

If you’re thinking of opening a savings account, Thrift banks are a great choice. This guide has everything you need to know about how they work, how to find the best rates and why they’re better than big banks.

Small businesses often have success getting funded by a bank that caters to working-capital needs. Otherwise known as thrift banks, these institutions also offer business credit cards and other banking services. 

Thrift banks typically have fewer locations than national chain banks like Wells Fargo.’The thrift bank offers a variety of savings accounts with FDIC insurance. Like other large banks, they offer many financial services. They also have small business, commercial and student loans (all of which are unsecured).

These kinds of banks offer many services similar to commercial banks, though more specialized in certain kinds of loans. Find out more about how they are regulated and how they function in comparison to commercial banks.

Definition and Examples of Thrift Banks

Thrift banks or savings and loans associations (S&Ls), are smaller than national banks, offer the same services, including federally insured savings and checking accounts. They’re primarily funded by consumer deposits.

They’re typically smaller than national banks—but that doesn’t stop them from going big. Commercial loans (for businesses) make up only a small percentage of their business, so you can rest assured that local families and businesses remain their central focus.

If you’re looking for a bank with local ties, Thrift banks are a great place to start your search. Thrifts typically offer services like credit and debit cards, federally insured savings and checking accounts and more.

Other names to Thrift Banks are thrifts, thrift institutions, savings and loan associations. The law only permits 20% to be dedicated of a thrift business to commercial loans or leases.

Thrifts are largely linked to lending practices. Working and middle-class borrowers have been able to receive better mortgage offers. For instance, they receive longer interest rates and mortgage terms than commercial banks.


How Thrift Banks Work

Thrift banks offer all the convenience of personal banking, but with a few perks. 

Not only do they often offer more competitive interest rates than traditional banks, many also pay out dividends to their shareholders.

In some ways, thrift banks can be said to operate like traditional banks, offering consumer accounts and credit cards, for example. They also have extra features, such as automatic withdrawals from checking accounts to make loan payments.

Unlike commercial banks, which are profit-driven, like a standard corporation, thrift banks are operated on a nonprofit basis. Their main goal is to advance their communities, and they sometimes provide financial services to those who would otherwise be unable to access them. 

Half of the savings at a mutual thrift bank must be loaned in its own community, and most banks partner with local schools or employers.

They can operate more conservatively and responsibly, which translates into higher interest rates for consumers.Thrift banks, or savings institutions, operate much like traditional financial institutions. 

They offer many of the same services and products, including personal loans, auto loans and certificates of deposit. Unlike traditional banks, thrifts are either owned by their depositors—commonly called mutuals—or by investors.

Since the financial crisis in 2008, little differences can be made between thrift banks and their commercial counterparts. The Dodd-Frank Wall Street Reform and Consumer Protection Act further consolidated regulation of thrift and commercial banks. 

The Federal Deposit Insurance Corp. (FDIC) steadily monitors the difference in interest rates to commercial banks to find out if the rates that are offered by the banks cause a negative effect on the lending industry or housing market.


History of Thrift Banks

Thrift banks originated in the late 18th century as building societies in the U.K. that provided residential mortgages. The Savings & Loan Association (S&L) was established in the U.S. to meet the demand for personal savings accounts and home mortgages. 

The Philadelphia Savings Fund Society was established in the U.S. in 1816 to receive deposits of savings from small investors and to make home mortgages to individuals who could not borrow from traditional commercial banks.

Thrift banks have a long history of offering savings and home mortgage loans. Named after their principal function, thrift banks were established to promote thrift, or savings. 

Originally known as savings and loan associations in the U.S., these institutions include credit unions, mutual and cooperative associations. They differ from traditional banks in that the deposits made into them are not covered by the Federal Deposit Insurance Corporation (FDIC).

Thrift banks are one of the oldest forms of banking. In the UK, they originated as building societies in the late 18th century, while in the US they were known as savings and loans associations to meet customer demand for personal savings accounts and home mortgages. 

They evolved from public-sector banking in the UK, where they originated in the late 18th century and later spread to the US. They were initially restricted to savings banks but later branched out into lending for mortgages.

In 1989, President George H.W. Bush appended the Financial Institutions Reform Recovery and Enforcement Act (FIRREA), which instituted the Office of Thrift Supervision (OTS) to monitor offer coverage under FDIC and oversee the regulations and services of thrift banks.

The act additionally reinstated increased net worth requirements for the institutions and illegalized Federal Home Loan Bank Board (FHLBB) and FSLIC. This centralized how thrift banks are regulated to tally with what is being offered by commercial banks.


Thrift Banks vs. Commercial Banks

Commercial banks and thrift banks offer different types of services. Whereas commercial banks provide loans and accounts to businesses, thrift banks primarily offer consumer accounts and loans, such as those for home mortgages.

Commercial banks focus on loans and other financial services geared toward businesses, whereas thrift banks offer consumer accounts and loans. In terms of size, commercial banks are typically larger than thrift banks.

Thrift banks—which some people colloquially call savings and loan associations—offer many of the same financial services as commercial banks. However, they are highly specialized and generally focus on consumers rather than businesses. 

Thrift banks offer individual accounts like savings, checking, and certificates of deposits (CDs). This makes them a good option if you are looking for a typical bank account. Commercial banks typically have more branches and locations, but they also offer customer accounts as well as business accounts and loans.

Thrift banks (also called savings & loans) offer many of the same services as big, national banks. They’re smaller, boutique institutions that specialize in consumer financial services like checking, savings and loans. In contrast, large, commercial banks offer similar services as well as business accounts and credit to large corporations and other businesses.

Because thrift banks are smaller than commercial banks, they are less likely to have multiple branches and ATMs. That can be a good thing: the level of personal attention given by their staff is often quite high, and they often offer personalized banking advice to match your unique financial needs.

Thrift-banks are locally owned, complete-service banks that specialize in superior customer service. They offer most of the products available at large commercial banks. Commercial loans make up only a small percentage of their business.Thrift banks are primarily concerned with offering financial services to consumers. At each type of institution, deposits are guaranteed by the FDIC up to $250,000 per depositor, and because thrift banks can borrow from Federal Home Loan System at highly reduced costs, their accounts yield better rates for depositors.


What Are Mutual Savings Banks?

A mutual savings bank is a financial institution owned by its depositors: account holders who have an equity share in how the bank is managed.

Mutual Savings Banks can be an excellent choice, they’re often the best option, offering the same rates as traditional banks with lower fees and better customer service. 

Furthermore, account holders are also shareholders and have a stake in how the bank is managed.

Many mutual savings banks are thrift banks. Thrift banks are similar to commercial banks and offer the main banking services. Because they focus on only one type of profit, they tend to offer lower fees than a commercial bank.

If you’re searching for a financial institution that offers higher-than-average interest rates, look no further than mutual savings banks (MSBs). These banks differ from traditional lending institutions such as credit unions and commercial banks, in that they allow their depositors to share in the profits of the bank. 

If you like the idea of making money by simply saving your own, an MSB might be right for you. 

Mutual savings banks have advantages over credit unions. You can earn interest on deposits and you may even be able to invest in the bank’s growth, like how you would with a stock.

One key difference between the credit unions and mutual savings banks is that while credit unions are not necessarily for profitz, mutual banks are. Credit unions pay dividends to their members but thrift and mutual savings pay interests over deposits made.


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