Mutual societies

Find out more about mutual societies including what they do, how they started and their advantages.

Key points

  • Mutual societies are run by their members with no external shareholders to pay
  • They're regulated by the FCA and PRA and benefit from FSCS protection
  • Societies are often linked to a location or trade

A mutual society is an organisation owned by its members.

Profits are usually reinvested to help improve the service, rather than paid out to external shareholders as they would be in a public limited company (PLC).

Members also have a say in the running of the mutual, as they part-own it.

Types of mutual societies

There are several different types of mutual society, which are subtly different in size, structure and the way they're run.

Building societies

Building societies are probably the best-known type of mutual society.

They offer a variety of banking products, from savings to credit cards and in most cases are large institutions with products available nationally through internet banking. As such they can be in many ways comparable to high street banks.

Credit unions

Credit unions are for those who share something in common, which is usually living in a certain area.

They tend to have a focus on ethical practice and keeping those with no or poor credit histories out of the hands of payday lenders.

Generally they offer loans and savings to their members, however some will offer current accounts and mortgages too.

Friendly societies

The main difference between friendly societies and other mutuals is historical - many friendly societies have existed for centuries, offering social and financial services to their members.

Nowadays they may offer products such as savings accounts, pensions and insurance.

You sometimes have to be part of quite a specific group to join a friendly society, for example the Bus Employees Friendly Society only welcomes... (well you get the picture).

Registered societies, including cooperative and community benefit societies

Cooperative societies are made up of members who come together to meet their social, economic and cultural needs through a jointly owned, democratic organisation. This permits an alternative way of forming a company which can provide a variety of services, not just banking.

See also:

A community benefit society will not only benefit its members but the whole of its surrounding community by creating jobs and offering services, so they'll have a wider purpose than the society and its members.

Note that community benefit societies aren't able to distribute surpluses to their members in the form of dividends, unlike other societies.

Insurance companies

Mutual insurance companies provide members with insurance and are owned by their policyholders.

Profits are reinvested back into the insurance company, so they are rebated to policyholders as dividends or used to offer lower future premiums.

What do mutual societies offer?

These types of institutions can offer a wide range of financial services, for example, savings, insurance and pensions.

As they're run by members for members, you may find that they offer higher interest rates on savings and low fees on various services, but this will vary between societies.

Advantages of mutual societies

'Friendly' service

Mutual societies tend to report a higher level of customer satisfaction than other banking organisations.

Initially mutual societies were built upon the idea that a group of people would contribute to a mutual fund, which they could use at their time of need, whether that's a period of ill health, old age or unemployment

Benefits for the economy

According to the Association of Financial Mutuals (AFM), mutuals apply competitive pressure on profit-seeking companies.

Consequently it claims that a stable mutual sector could aid in combating fluctuations in the stock market, helping to avoid another recession.

UK mutuals are driven by the local community as all their members live in the country and, as such, the majority of their assets are reinvested in bonds, shares and property in the UK.

Peter Hunt, chief executive of mutual societies advocate Mutuo, believes that the growth of the mutual sector would promote diversity in business and establish competition and choice for consumers, while providing business structures that protect the public interest.

Tax-free savings

Members of friendly societies are able to save up to a maximum of £25 a month or £270 a year tax free, and this includes children, too. Note that this is on top of your Individual Savings Account (Isa) allowance.

A plan is usually upwards of 10 years, so if you'll need the cash before then, this isn't the option for you.

Be aware of the interest rate on these accounts, as you may reap better rewards with a different type of product, like a savings or current account.


Mutual societies are regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).

They're also covered by the Financial Services Compensation Scheme (FSCS), which offers protection for money deposited with the mutual society in the event that the institution goes bust.

How did mutual societies start?

Did you know...?

  • It's not unusual for smaller mutuals to be acquired by larger ones. For example, Druids Sheffield Friendly Society was absorbed by Manchester's Oddfellows Friendly Society in March 2015

Mutual societies have been around for hundreds of years.

Initially they were built upon the idea that a group of people would contribute to a mutual fund which they could use at their time of need, whether that was a period of ill health, old age or unemployment.

Some were set up for like-minded people with similar political, trade or religious beliefs.


Demutualisation is the process by which a member-owned organisation such as a mutual society becomes a shareholder-owned organisation, usually as a way of raising external capital.

This started in the 1980s with a number of mutual societies' members voting for their association to become a PLC.

It's worth bearing in mind that every demutualised society has since either been taken over or collapsed.


It's not unusual for smaller mutuals to be acquired by larger ones. For example, Druids Sheffield Friendly Society was absorbed by Manchester's Oddfellows Friendly Society in March 2015.

"Friendly societies are under growing regulatory pressure with even stricter capital adequacy requirements," said Jane Nelson of Oddfellows.

"Joining forces gives us the competitive scale to continue to flourish and it means we're even better able to meet member needs."

The future of mutual societies

Despite the rocky recent history of demutualisation, there are still more than 10,000 mutual societies in the UK today and the landscape for mutuals may be set to change in the near future.

The Mutuals Deferred Shares Act 2015 was passed and became an Act of Parliament on 26 March, 2015.

The bill makes it possible for mutuals to raise new capital from their members, permitting the creation of member investment shares in an insurance mutual.

This a big step forward for mutuals which previously would have had to raise capital through retained earnings and debt.

See also:

The original private members bill was introduced by Cardiff North MP Jonathan Evans, who said:

"The important contribution made by mutuals to both innovation and corporate diversity has been significantly undermined by their inability to raise regulatory capital other than by retaining past profits, without losing their mutuality.

"I have no doubt that many more mutual companies would still be around today if these measures had been passed three decades ago."

By Abbie Laughton-Coles