Mutuality
What are the key benefits of Building Societies versus PLCs?
- Better products - higher savings and lower mortgage rates (i.e. Consistently top best buy tables)
- Working for our members and not for shareholders (e.g. it costs 35% more to run a bank)
- Provide a competitive control for the financial markets
- Tackle financial exclusion
- Offer regional diversity missing from nationwide banks
- In the long term offer consistent value
What is the Newcastle doing as a "Mutual" society?
The Newcastle Building Society remain committed to the ethos of mutuality, and as a mutual organisation we are committed to delivering tangible benefits to our members. Maximising profits is not our primary aim.
Our staff are committed to excellent customer service and all understand the need for excellent customer care. The Newcastle have developed, over a period of time, a comprehensive training plan for those staff who deal with our customers, starting with a two week induction course and then covering specialist customer service skills. The Society spends approximately £230,000 a year on staff training courses.
Not included within this amount is our further commitment to staff training where each staff member also undertakes at least one half hour training session each week.
Our products are often market leaders, evident by our regular appearances in the "best buy" tables in the national press.
We are investing huge sums in Information Technology to deliver real benefits, not by replacing staff, but by reducing administration and delivering greater customer contact. The introduction of our Customer Contact Management System throughout our branch network, and "workflow" systems at Principal Office will substantially change the way we work, ensuring a better service to our customers.
The Newcastle are active in the communities in which we are based, forging links with our customers. On an annual basis we have a Community fund of £70,000 which is used to support a variety of grass roots voluntary projects and charities in the areas surrounding our branches. Our aim is to sustain and nurture those communities and in doing so address some of the key issues which concern our customers and the public at large.
We hear a lot about mutuality. What does mutuality mean?
A mutual society is run in the interests of its members, the savers and borrowers - and is not listed on the stock market or owned externally.
The key advantage of this over a stock market listed or PLC bank is that a mutual does not have to pay dividends to its shareholders. This means that the surplus or profit a Society makes can be put back into the organisation to benefit its members through interest rates which are higher for savers and lower for borrowers, and through better services.
Do Mutual Building Societies really give better value for money to their members?
One way of looking at how much value a customer is getting from a financial organisation is to look at the difference between interest rate a customer receives for their savings and the interest rate they pay on their mortgage. The narrower the margin between the two, gained by high savings rates and low mortgage rates, the better the value.
Generally Building Societies operate on lower margins than the banks that used to be building societies. Many building societies operate on margins of less than 1.5%, whereas the converted institutions tend to have margins above 2%.
How can I find out who is giving the better deals - banks or building societies?
The personal finance pages of the national press (particularly on Wednesdays and at weekends) carry weekly tables showing the 'best buys' in terms of financial products such as mortgages and savings accounts. The Newcastle regularly feature heavily in these best buy tables with a recent example being our "NewcastleNet Savings Account".
A more comprehensive list of products also appears in the publication Moneyfacts which can usually be found at your local library.
Will the Newcastle convert soon?
No, the Newcastle Building Society are committed to remaining mutual in the knowledge that by doing so we can best serve our members interests with low mortgage rates and high savings rates.
What is a Charitable Assignment scheme and why have you got one?
In order to deter carpetbaggers and protect genuine investors, the Newcastle Building Society have introduced a charitable assignment clause to application forms for new savings accounts.
This means that, for a five year period from signing the application form, any possible windfall in the event of a conversion to a PLC the member would receive would go to a charity chosen by the society.
The Charitable assignment scheme was introduced in April 1999 as there was a real concern within the organisation that we would not be able to offer a high level of service to our customers as a result of the huge volume of account applications we were receiving from speculators, or so called "carpet baggers". The Society had previously increased the minimum investment balance for our investment accounts to £1,000 in an attempt to deter these speculators, but we did appreciate that this was pricing the Society out of reach for a large number of genuine investors. As such we felt that the implementation of a Charitable Assignment Scheme would best serve the interests of the society.
What is a "carpet bagger" and where does the term come from?
The term "carpet bagger" comes from the American Civil War, when people from the North packed all their belongings into carpet bags and headed south to lay claim to land which was not theirs. It was first applied to those seeking building society windfalls in early 1996.
"Carpet bagging" began in the early 1990's following the conversion and subsequent windfall received by members of the Abbey National. Seeing a way to make short term gains, and unconcerned about the long term costs, numerous people opened accounts (often with as little as £100) in many of the remaining building societies with the sole aim of receiving a windfall should they convert.
Is it just members who benefit from mutual building societies?
The advantages to our members of a mutual society have been discussed within the previous questions. It is also in the best interests of the financial sector that an alternative to banks exist. The presence of building societies not only provides choice and diversity, but also provides a competitive benchmark for banks and other financial institutions, without which margins could well increase.
I just want a windfall, what would we lose if you were to convert?
There is clear evidence that former building societies which have become banks have undertaken significant branch closures.
If the Newcastle building Society were required to change status to a bank or PLC, it is likely that our branch network would be reduced thus diminishing the scope and level of service to our members, and also effecting the social needs of some of the communities in which we are based. The Newcastle believe that a friendly personal service from staff who know their customers is important.
The Newcastle was one of the first to offer a discounted mortgage rate to reward long-standing borrowers for their loyalty. We also offer preferential investment products to investors who have been with the Society for five years or more. It is likely that both would be withdrawn should the society convert.
The Newcastle are very active in the communities in which we operate. We believe it is important that we "interact" with the public, and that they perceive us as a friendly caring organisation which values customer loyalty, gives value for money, and contributes to the current and future well being of the community.
Our support to the communities in which we work include our Newcastle Building Society Community fund, through which we are able to support a number of grass roots voluntary projects and charities in the areas surrounding our branches. We also have an Annual Charity Challenge where our staff, and customers, raise money for a good cause. The Society also makes a sizeable contribution. It is likely that, due to the need for profit maximisation, we would have to withdraw from these projects should the Society convert.
Finally, mutual building societies have out-lent the quoted mortgage banks and attracted significantly more savings inflow over the last two years.
The Newcastle do not have to pay dividends to shareholders which allow us to provide highly competitive products for our members, and whilst we will never be able to offer the best possible deal on every product, we do feature regularly in the "best buy" tables.
It is unlikely that we could continue to offer such a diverse range of competitive, innovative products should we convert.