Mutual Saving Bank

Updated on June 14, 2024
Article byWallstreetmojo Team
Edited byAaron Crowe
Reviewed byDheeraj Vaidya, CFA, FRM

Mutual Savings Bank (MSB) Definition

Mutual Savings Bank (MSB) refers to a thrift institution licensed by the government without having any shareholder or capital stock owned by the people with an account. It was primarily set up to aid low-income workers in having savings with their extra disposable income. These people otherwise had been investing in fixed-rate assets in long-term like mortgages.

Mutual Savings Bank (MSB)

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The account holders who deposited their money in the bank could apply for a loan at a lower interest rate and get a higher interest rate on their savings. Moreover, the members receive the profits from the bank after the deductions owing to expenditure on operations and human resources. Mutual savings banks provide retail banking services, such as savings accounts, mortgages, and consumer loans, to individuals and families.

Key Takeaways

  • A mutual savings bank is a unique thrift institution owned by the depositors, which comes under US depository institutions having the ability to take deposits and give loans to distribute the profits to every depositor.
  • These banks provide safety and security to deposits with higher rates and lower interest rates on loans. 
  • The primary differences between commercial, mutual, and credit unions lie in the ownership pattern where shareholders own the commercial bank, depositors own the joint bank, and a typical company’s staff members own the credit union.

How Does A Mutual Savings Bank Work?

Mutual savings bank is defined as a type of bank that has ownership with its depositors and works to create profitability for account holders. It is a form of cooperative banking where customers are depositors and bank shareholders. The first mutual banks were established in 1816 to provide a safe and secure venue for savings and earning interest for working-class families. 

Until 1970, mutual savings bank locations were spread across America, like mutual savings bank Indiana. Here’s an overview of how this financial institution works:

  • Ownership and governance: When individuals open accounts and deposit money, they become bank members and have voting rights in their decision-making processes. This ownership structure ensures that the bank operates in the best interests of its customers.
  • Deposits: Customers deposit their money into various accounts that mutual savings banks offer. Therefore, these deposits provide the funds the bank can use to lend to borrowers.
  • Lending: They offer various lending services, such as mortgages and personal and business loans. Moreover, the interest earned from these loans forms a significant portion of the bank’s income.
  • Financial Stability and Regulation: Mutual savings banks are subject to regulatory oversight by state banking authorities or federal agencies.
  • Community Focus: Mutual savings banks often have a strong community focus. They aim to serve the financial needs of the local community and contribute to its development.

Thus, mutual savings bank hours have remained the same as other commercial banks. Every mutual savings bank routing number varies from bank to bank. Anyone opening these banks becomes the owner of the bank automatically. Moreover, these economically weak get a higher rate of interest and loans at a lower rate of interest on account of profit sharing by the bank.

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Let us consider some examples to relate and understand the concept in a better manner.

Example #1

Saco & Biddeford Savings Institution (SBSI), a mutual savings bank founded in 1827, has chosen Jack Henry to modernize its IT infrastructure and expand small business banking.

The $1.3 billion-asset bank sought a proactive technology supplier that provided best-in-class offerings to all parts of the bank. Moreover, it wanted to improve integration and automation while delivering customers a wide range of banking services. Hence, SBSI invested in a full suite of Jack Henry products to achieve its objectives, including core processing, digital banking, lending, payments, and cash management solutions.

Therefore, Jack Henry’s technological modernization strategy redefines traditional core processing by unbundling services and making them widely available as the bank values standalone modules in a public cloud. SBSI CEO Bob Quentin says, “Jack Henry’s flexible cash management and lending solutions will give our business customers the tools they need to thrive. While improving efficiency, customer service, regulatory compliance, and market competitiveness for future growth.

Example #2

Suppose Eastern Bank operates as a mutual savings bank based in Boston, Massachusetts, the US. It serves the residents of Boston. Hence, Eastern Bank Mutual Savings Bank members can open savings accounts and earn competitive interest rates on their deposits. The bank also offers personal loans and mortgages to its members at affordable rates. As a mutual savings bank, the bank prioritizes the well-being of its members and actively engages with the community by supporting local initiatives and providing financial education resources.

Moreover, the bank holds annual meetings where members can voice their opinions and elect the board of directors. With a commitment to personalized service and community development, Eastern Bank strives to be the trusted financial partner for the residents of Boston.

Advantages & Disadvantages

Let us discuss some advantages and disadvantages of mutual savings banks using the table below:

Depositors control the ownership of the banks.The bank needs to be better controlled and get directionless.
Here, the insurance of the bank gets insured by FDIC.Since banks here could turn public or private anytime, this risks the deposits of the accountholders.
  However, the bank’s primary goal remains the community’s growth. These banks do not have a national presence limiting the service area and hence not suitable for accessing banking services everywhere.
Depositors get a higher rate of interest. Additionally, the bank needs more technological advancement in the banking sector.
Banks tend to be financially stable. Poor people could only get some standard and technologically advanced services from them.
These banks provide easy access to banking services to all poor people. 365 by 24 services are not provided to depositors on a pan-America basis.

Mutual Savings Bank vs Credit Union vs Commercial Bank

Let us discuss the difference between mutual savings bank, credit union and commercial banks using tables:

Mutual Savings BankCredit UnionCommercial Bank
Federal Deposit Insurance Corporation (FDIC) insures their Deposits.National Credit Union Administration (NCUA) insures the deposits.Federal Deposit Insurance Corporation (FDIC) insures their Deposits.
Depositors own the bank.Owned by the people.Owned by the shareholders
Offers both commercials as well as consumer services like loans and savings deposits.These offers deposit servicesBoth credits, as well as deposits, get offered at commercial bank rates.
They work to obtain profits for depositorsHowever, they don’t engage in any profit-making activity for people.Their sole purpose has been to make profits for the shareholders.
Deposits get a higher rate of interest Commercial banks offer all banking servicesBoth credits, as well as deposits get offered at commercial bank rates.
Anybody having a deposit account with it can be its owner.The only person employed related to a credit union can be its member rather than the owner.Anyone having shares can be its owner. Account holders do not have ownership of these banks.

Frequently Asked Questions (FAQs)

1. Is mutual savings bank non-profit?

Mutual savings banks are not inherently nonprofit organizations. At the same time, they may have a different ownership structure and governance compared to traditional shareholder-owned banks. However, some mutual savings banks may choose to operate as nonprofit entities. In such cases, they typically aim to provide financial services and support to their members and communities without generating profits. Ultimately, whether a mutual savings bank is a for-profit or nonprofit entity depends on its specific structure, mission, and regulatory framework within which it operates.

2. How are decisions made in a mutual savings bank?

In a mutual savings bank, members typically have the opportunity to participate in decision-making processes. They may elect a board of directors from among the membership or vote on significant matters, such as changes in policies, mergers, or the appointment of executives.

3. Are mutual savings banks insured?

Most of these banks are insured by the Federal Deposit Insurance Corporation (FDIC) in the United States or similar deposit insurance programs in other countries. This insurance protects depositors’ funds up to a specific limit per depositor, per bank.

This has been a guide to Mutual Savings Bank & its definition. We explain its examples, advantages, and comparison with credit union & commercial banks. You can learn more about it from the following articles –

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