Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.

Key takeaways

  • Savings and loan associations — also known as savings banks, thrifts and thrift institutions — are financial institutions typically owned by their customers or shareholders.
  • Savings and loan associations were established in the 1930s to provide more affordable mortgages to consumers.
  • Home loans remain their specialty, though they offer other banking products and services too.
  • While not as prevalent today, savings and loan associations played a role in driving homeownership for much of the 20th century.

Once upon a time, if you wanted to borrow money to buy a house, a savings and loan association (S&L) was the go-to place. Born during the Great Depression, these cooperative-like financial institutions specialized in offering mortgages for residential properties. They played a big role in making homeownership possible for millions of middle-class Americans throughout much of the 20th century.

While not as prevalent today, S&Ls still exist, extending financing to aspiring homeowners. Let’s look at how savings and loan associations operate and why you might want to get a mortgage from one.

Savings and loan association definition

A savings and loan association (S&L) is a financial institution that provides banking and home lending services. It is somewhat comparable to a bank or credit union (especially the latter) but has a different overarching goal and structure.

Also known as savings banks, thrift institutions or just thrifts, S&Ls typically are private institutions owned by customers or shareholders, though some are publicly traded companies. They receive savings from individuals and use those funds to provide loans — primarily residential mortgages. While nowadays S&Ls offer checking accounts and other financial services, mortgages and home equity loans are still mainly what they do.

History of savings and loan associations

The modern savings and loan association arose from the Great Depression and the New Deal’s efforts to stimulate homeownership and the home construction industry.

The Federal Home Loan Bank Act of 1932 established the Federal Home Loan Bank System, a network of 11 (originally 12) government-sponsored entities designed to fund and support member home-lending institutions (similar to the Federal Reserve System for commercial banks). As a result, a wave of local, federally-chartered savings and loans developed around the U.S. Backed by low-cost government funding, the S&Ls were able to offer long-term home loans at fixed interest rates — the 30-year mortgage as we know it today.

In their heyday, there were 4,000 federal savings and loan associations. They were the main conduit connecting would-be homeowners with mortgages. Their looking-out-for-the-little-guy approach was even lauded in the 1946 Frank Capra film “It’s A Wonderful Life.”

$600 billion

The amount of assets held by S&Ls at their height in 1980. About $480 billion were in mortgage loans — roughly half of all the outstanding residential mortgages in the U.S. at the time.

Today, there are far fewer savings and loan associations than there were in the mid-20th century. Many closed their doors during the savings and loan crisis of the 1980s and 1990s: Inflation and competition from other lenders made some insolvent, while unscrupulous practices by other players tarnished the entire industry’s reputation.

For most of their existence, S&Ls had been insured by the Federal Savings and Loan Insurance Corp (FSLIC). Bankrupted by having to bail out so many thrifts, the FSLIC was abolished in 1989, and S&Ls fell under the purview of  the Federal Deposit Insurance Corp. (FDIC), which also insures banks.

Savings and loan associations vs banks and credit unions

When it comes to getting a mortgage, banks, credit unions and savings and loan associations each have pros and cons.

Savings and loan associations operate similarly to banks and credit unions in that they offer many of the same services: on-demand accounts and home loans. However, unlike most banks, savings and loan associations focus on mortgages and savings accounts, and retail (individual) clients: They are limited in the extent of the commercial lending they can do. By law, 65 percent of their assets need to be in consumer loans/products.

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. The corporate structure of many S&Ls also is similar to credit unions’: Both are “mutual” societies, meaning they are technically owned by their clientele — depositors and borrowers.

Why would you use a savings and loan association?

The major purpose of a savings and loan association is right in its name — it specializes in residential mortgage loans and savings deposits. S&Ls are usually smaller institutions than other mortgage lenders, concentrating on growing homeownership in the communities they service. Given this localized, community spirit, they may be able to offer you better rates on a savings account and/or a mortgage.

In fact, thrifts historically have offered a higher interest rate on customers’ savings, thanks to the low-interest funding they get from the Federal Home That, along with their geared-to-the-little-guy approach, has always been one of their big advantages over commercial banks. Of course, the scene is much more competitive now, but you still might be able to score a higher interest rate on an S&L savings account with a lower minimum.

Because mortgages are its specialty, a thrift might be able tailor a product more closely to you or offer terms you might not see elsewhere. You may be able to get a discount on your mortgage or closing costs if you have a savings account with the institution. For instance, Farm Bureau Bank, a Nevada-based S&L, offers a $500 credit towards closing costs along with no underwriting or processing fees for its members.

You may also be able to get a lower mortgage rate with an S&L. As of Aug. 30, 2023, the average rate for a 30-year fixed-rate mortgage with a thrift was 7.21 percent, according to a Bankrate’s weekly survey of lenders and rates — compared to 7.44 percent for national banks. Along with lower interest rates, thrifts also reported lower fees: $880.21 on the 30-year fixed with the thrifts, versus $1,112.02 for banks.

Another benefit of S&Ls: You’re that you’re more likely to receive hands-on customer service. Because they serve specific communities with brick-and-mortar locations, if you get a mortgage with an S&L, you may have a more personalized experience than if you went with a large, national super bank or an online-only lender.