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If your holiday traditions include watching Jimmy Stewart learn that “It’s a Wonderful Life,” you probably remember the plucky Bailey Bros. Building & Loan Association and how it financed hundreds of single-family homes in good old Bedford Falls.
But while they’re not as common as they used to be, savings and loan associations, or “thrifts,” still play an important role in many Americans’ financial lives.
The biggest difference between a thrift and a conventional bank is that thrifts are designed to serve U.S. consumers rather than businesses. By law, thrifts must have 65 percent of their lending portfolio tied up in consumer loans, says Tanya Marsh, professor of law at Wake Forest University in Winston-Salem, North Carolina.
What thrifts do
A typical consumer probably won’t notice a lot of obvious differences between a thrift and, say, a community bank. Like community banks, thrifts are generally smaller, local institutions and don’t have the reach or resources of a large national bank like Chase or Bank of America, Marsh says.
Thrifts offer customers many of the same deposit products you can get at a bank, such as checking accounts, savings accounts and certificates of deposit, as well as credit products such as home and auto loans and credit cards. Just as with a bank, all your deposits up to $250,000 are backed by the full faith and credit of the U.S. government through the Federal Deposit Insurance Corp.
From a consumer perspective, thrifts do have a big advantage over banks: higher interest on customers’ savings.
“Because thrifts can borrow money from the Federal Home Loan Banks at a low rate of interest, that usually translates into higher rates of interest on savings accounts at thrifts as compared to commercial banks,” Marsh says. “That’s been, traditionally, one of their benefits.”
What thrifts don’t do
Thrifts typically don’t offer the kind of one-stop shop for financial services that you’ll find at many banks, says Brett Rabatin, CFA, an analyst and managing director at the Hovde Group, an investment banking and financial services firm in Inverness, Illinois.
“If you walk into a savings and loan or thrift branch, versus a commercial bank, the product set is going to be a lot simpler,” Rabatin says.
That means you’re likely to find fewer types of accounts and less in the way of wealth management, foreign exchange and insurance products and services than you might find at a conventional bank.
History of thrifts
Thrifts have been around for a long time, starting out as “building societies” in the United Kingdom in the late 18th century and eventually making their way to the United States.
“Thrift charters actually go back pre-Civil War,” says Chris Cole, executive vice president and senior regulatory counsel at the Independent Community Bankers of America.
The depiction of thrifts in that old movie “It’s a Wonderful Life” is in some ways fairly accurate. Whether they were mutual (owned by their customers) or corporate (owned by shareholders), they served one main purpose in the U.S. economy: making sure working-class people could get mortgages to buy single-family homes.
Millions of Americans in the postwar era bought homes with loans from thrifts; at one point in the postwar period, they were making the majority of mortgages in the U.S., Cole says.
That changed when the deregulation of the financial services industry, followed by a wave of failures in the 1980s, decimated thrifts. Thrifts began investing in risky projects in a desperate attempt to make up for losses. Eventually, the government resolved to close down 747 insolvent thrifts, according to the Federal Reserve.
“The thrift industry has not recovered from the S&L (savings & loan) crisis decades ago,” Wake Forest’s Marsh says.
Today, there are just over 600 thrifts in the U.S., according to market researcher IBISWorld — a significant decline from the almost 4,000 thrifts that existed in 1980.
Thrifts may be harder to find in the future
These days, the lines between thrifts and conventional banks have blurred, Hovde Group’s Rabatin says. Savings and loan associations are moving more into commercial lending and construction, and an increasing number are converting to conventional banks.
“I don’t know why anyone would start a thrift today,” Marsh says. “People are loyal to local institutions, so some of them can hang on. But this is a rapidly consolidating industry overall.”
Thrifts and conventional banks offer similar deposit and credit products, but thrifts are designed to serve consumers rather than businesses. One potential advantage of thrifts is that they offer higher interest rates on savings accounts. However, thrifts typically offer fewer financial services and are becoming increasingly rare due to their consolidation in the aftermath of a wave of closures in the 1980s.
— Claes Bell wrote a previous version of this article.