Savings And Loan Association (S&L)

What Is A Savings And Loan Association?

A Savings and Loan Association is a financial institution that accepts savings deposits and focuses on helping people get mortgages.

Deeper Definition 

It is also called “S&L” or “thrift.” It is a community-based financial institution whose focus is on low-cost funding for mortgages. Unlike commercial banks, they are owned and controlled by their customers. They are mutual savings banks – customers have voting rights and can direct the financial and managerial goals of the association.

The savings and loan association may abandon the mutual ethos and become a joint-stock or publicly-traded company. In such instances, depositors and borrowers would lose voting rights and managerial control.

The savings and loan association became popular in the early 20th century by helping their members own homes through mortgage lending and further helping them save and invest their money. They offered mortgages at lower cost and savings accounts that pay a higher interest rate than commercial banks. The idea was that higher interest rates on savings would attract more deposits, allowing them to continue writing more mortgage loans.

Savings and loan associations offer a wider variety of mortgage types than most commercial banks. That is because there are legal restrictions that confine their purpose to mainly mortgage. By law, savings and loan associations can lend no more than 20% of their funds in commercial loans and must lend at least 65 percent of their assets to mortgage.

There are not many savings and loan associations today. With a change in customer behavior, needs, and expectations, many savings and loan associations switched focus or merged with other banks. Today, they offer various types of products and services provided by commercial banking firms and credit unions.

Savings And Loan Association Example

Riverside Savings Bank is a fictitious savings and loan association that was prominent in 1910. They offer bank accounts and a variety of savings products and services. Products such as retirement accounts, pensions and mortgages are available to the members of this bank. This bank does not exist in the present day due to the reasons explained above.