What is the difference between a bank, a building society and a credit union?

The difference is who owns them, and ownership determines who the institution ultimately exists to serve.

A bank is a company owned by shareholders, who may have no relationship with it as customers. Profits belong to those shareholders. Banks are typically the largest institutions, offering the widest product range and the most developed technology, and they are answerable to investors expecting returns.

A building society is a mutual, owned by its members — the people who save with it or borrow from it. There are no external shareholders, so profits are retained or returned to members through better rates. Building societies were founded specifically to pool savings and fund house purchases, and UK law still restricts them: a substantial majority of lending must be secured on residential property, which constrains riskier activity.

Members get a vote regardless of account size, and a vote on any proposal to demutualise — convert to a bank, as many did in the 1990s, paying members windfalls and ending mutual status.

A credit union is a member-owned financial cooperative, usually smaller and local, where members share a common bond — living in an area, working in an industry, or belonging to an organisation. Members save with the union, and those savings fund loans to other members.

Their distinctive features: interest rate caps on lending set by law in the UK, which makes them a genuine alternative to high-cost credit; a willingness to lend to people with thin credit files, since decisions consider the member's saving history; and returns paid as a dividend on savings rather than a fixed rate.

Their limitations: limited product ranges, smaller branch and digital presence, and often a requirement to save before borrowing.

Crucially, all three are covered by the same protection if authorised — the FSCS guarantees deposits up to the limit per person per institution, regardless of type.