What is a savings and loan association (S&L)?
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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.
- 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. While nowhere near as commonplace today, S&Ls still exist, primarily to extend financing to homebuyers.
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. They might also offer checking accounts, home equity loans or other financial products and servicers.
History of savings and loan associations
The modern savings and loan association arose from the New Deal’s efforts to stimulate the housing market during the Great Depression. S&Ls played a big role in making homeownership possible for millions of middle-class Americans throughout much of the 20th century.
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.
$600 billion
Source: Federal Reserve History
In 1980, there were approximately 4,000 savings and loan associations. As of 2023, there were less than 600, according to the Federal Deposit Insurance Corp. (FDIC).
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 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: banking 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 or 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 is also similar to that of 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?
Savings and loans associations are usually smaller institutions compared to other mortgage lenders, concentrating on growing homeownership and meeting the financial needs of local consumers. S&Ls are also known for more competitive interest rates and better-tailored customer service.
Competitive interest rates and fees
Historically, thrifts have offered higher interest rates on savings accounts compared to banks, thanks to the low-interest funding they get from the Federal Home Loan Banks.
You might also be able to get a lower mortgage rate with an S&L. As of early April 2024, the average rate for a 30-year fixed mortgage with a thrift was 7 percent, according to a Bankrate’s weekly survey of lenders, compared to 7.05 percent for national banks. Along with lower rates, thrifts also reported lower fees: $1,033.40 on the 30-year fixed with thrifts, versus $1,087.82 for banks.
More personalized service
Another benefit of S&Ls: 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 might have a more personalized experience than if you went with a large national bank or an online lender. A thrift might also be able tailor a home loan product more closely to you, or offer terms or discounts you might not see elsewhere.
