While not as prevalent today, savings and loan associations played a role in driving homeownership through much of the 20th century. Also known as thrifts, these financial institutions are somewhat comparable to banks and credit unions, but have a different overarching goal and structure.

Savings and loan association definition

A savings and loan association (S&L) is a financial institution typically owned and overseen by its customers or shareholders. Because of this “pool” structure, savings and loan associations are able to offer mortgages and other types of financial products to customers who might otherwise not have access to them. They are often locally-based, and by law required to dedicate the majority of their lending to financing residential properties.

Savings and loan associations are also known as savings associations, savings banks, thrifts or thrift institutions.

Savings and loan associations vs. banks and credit unions

Savings and loan associations operate similarly to banks and credit unions in that they offer many of the same services, such as banking and home lending. However, savings and loan associations focus more so on mortgages and savings, whereas banks work with businesses in addition to individuals.

While they’re much smaller than the big brands in banking, savings and loan associations tend to boast higher interest rates on savings vehicles, not unlike credit unions. Akin to the customer-at-the-forefront operations of a savings and loan association, credit unions have membership requirements, as well.

When it comes to getting a mortgage, banks, credit unions and savings and loan associations each have pros and cons. (Learn more about the types of mortgage lenders and the differences between a big bank and a local shop.)

History of savings and loan associations

Savings and loan associations arose out of the Great Depression, chartered by the federal government in the Federal Home Loan Bank Act of 1932. This established the Federal Home Loan Bank System, designed to encourage homeownership. In their heyday, federal savings and loan associations were majorly responsible for connecting would-be homeowners with mortgages. This practice was famously exemplified in the 1946 Frank Capra film “It’s A Wonderful Life.”

Today, there are far fewer savings and loan associations than there were in the earlier part of the 20th century, and 11 Federal Home Loan Banks now operate in various regions throughout the U.S. Many savings and loan associations closed their doors during the savings and loan crisis of the 1980s and 1990s, when climbing interest rates pushed customers to move their money elsewhere. Up until then, they had been insured by the Federal Savings and Loan Insurance Corp (FSLIC). Now, they are insured by the Federal Deposit Insurance Corp. (FDIC), which also insures banks.