What is Thrift Bank?
A thrift bank, also known as a savings and loan association, is a form of a financial institution that provides basic banking services by offering a variety of savings options and mortgage loan services and just like commercial banks these too qualify as a depository institution and may even provide a range of other products and services.
Earlier, thrift bank was confined to offering time deposits and savings accounts. Still, with the change in customer behavior, preferences, needs, and expectations, these banks started offering various types of products and services that are offered by both commercial banking firms and credit unions.
Functions
- These banks are financial institutionsFinancial InstitutionsFinancial institutions refer to those organizations which provide business services and products related to financial or monetary transactions to their clients. Some of these are banks, NBFCs, investment companies, brokerage firms, insurance companies and trust corporations. read more that function for the purpose of relieving the monopoly stress and offering their account holders with facilities like savings accounts, mortgage loans, etc. The functions are to accept deposits and offering mortgage loans to their customers.
- The interest on the savings deposited by the customers in the bank is high. In contrast, the interest on the mortgage loan availed by the customers is relatively lower as compared to commercial banks and credit unions.
- The thrift banks are formed to offer their customers mortgage loan facilities and enable them to make savings from time to time. It also focuses on relieving the mortgage and lending market from a monopoly of domestic or foreign banking institutions.
- These banks also function to offer mortgages at lower cost and savings accounts that pay a higher rate of interest in comparison to national and international banking institutions. These banks function in the best interest of the local people, and for this reason, they offer savings accounts and mortgage loans that could benefit the locals.
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Types
The types are provided and discussed below:
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- Savings Bank- These types of banks generate funds from the sale of saving deposits to the customers and investing the same in offering mortgage loans.
- Private Development Bank- These types of banks are formed for supporting government policies.
- Stock Savings and Loan Associations- It is a locally or privately managed financial banking institution that takes long term deposits into use for providing amortized home loans.
Examples of Thrift Bank
Various banks are operating as thrifts. A few of them are mentioned below:
- Allied Savings Bank
- City Savings Bank
- Business and Consumers Bank (A Dev’t. Bank)
- Citystate Savings Bank, Inc
- Bank One Savings and Trust Corporation
- Legazpi Savings Bank, Inc.
- Luzon Development Bank
- Dumaguete City Development Bank
- EIB Savings Bank, Inc.
- LBC Development Bank
- Lemery Savings and Loan Bank, Inc.
- Cordillera Savings Bank, Inc.
- Sampaguita Savings Bank, Inc.
- GSIS Family Bank
- Liberty Savings Bank Inc.
- BDO Elite Savings Bank, Inc.
- Inter-Asia Development Bank
- ISLA Bank, Inc.
- Life Savings Bank, Inc.
Thrift Bank vs. Commercial Bank
Thrift banks and commercial banks are totally different from one another even though the former now offers a similar line of services to that of commercial banking institutions and credit unions.
#1 – Commercial Banks
- Commercial banks are profit-oriented. That is, they operate mainly to earn profits, and these banks don’t need to maintain asset classAsset ClassAssets are classified into various classes based on their type, purpose, or the basis of return or markets. Fixed assets, equity (equity investments, equity-linked savings schemes), real estate, commodities (gold, silver, bronze), cash and cash equivalents, derivatives (equity, bonds, debt), and alternative investments such as hedge funds and bitcoins are examples.read more.
- The shareholders mostly own commercial banking institutions, and as a result of this reason, these banks function with an objective to earn more and more profits so that they can successfully maximize the wealthMaximize The WealthWealth maximization means the maximization of the shareholder’s wealth as a result of an increase in share price thereby increasing the market capitalization of the company. The share price increase is a direct function of how competitive the company is, its positioning, growth strategy, and how it generates profits.read more of their shareholders.
- The state and federal law determine the powers of commercial banks.
- Commercial banksCommercial BanksA commercial bank refers to a financial institution that provides various financial solutions to the individual customers or small business clients. It facilitates bank deposits, locker service, loans, checking accounts, and different financial products like savings accounts, bank overdrafts, and certificates of deposits.read more operate under the FRS (Federal Reserve System), and such banking institutions procure deposit insurance from FDIC (Federal Deposit Insurance Corporation).
#2 – Thrift Bank
- Thrift banks are such types of banking institutions that are way different from commercial banks when it comes to goals and objectives and similar only in the case of offering products and services.
- Thrift banks, unlike commercial banks, are not profit-oriented. It is mandatory for the thrifts to be a member of the FHLBS (Federal Home Loan Bank System).
- It emphasizes more on assets that are related to housing. Unlike commercial banks, these offer loans at a lower interest rate and offer higher returns on savings to their customers.
- These banks are not profit-oriented. Rather these are local people-oriented. These banks function with the purpose of assisting the local people with savings and loan facilities and ensure that the monopoly of the national and foreign banking institutions does not impact the economy.
- They are mutually owned. These are either owned by depositories or stockholders.
Conclusion
Thrifts bank can also be called as a saving and mortgage loan associations. These are often termed as a type of savings bank that offers specialized services in the real estate sector. It offers savings accounts facilities and home mortgage loan facilities to local people. These are mutually owned as some of them are owned by the stockholdersStockholdersA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company's owners, but their liability is limited to the value of their shares.read more while the others are held by their depositors.
These banks offer their customers a higher level of liquidityLiquidityLiquidity shows the ease of converting the assets or the securities of the company into the cash. Liquidity is the ability of the firm to pay off the current liabilities with the current assets it possesses.read more with respect to mortgage loans and also provide a higher yield for savings accounts. Thrifts initially offered facilities like time deposits and savings accounts. Still, with the expansion of banking services and the change in customers’ expectations and requirements, these banks too started offering a similar line of products as compared to commercial banks and credit unions.
Thrift banks function with the purpose of benefiting the local people, and for this reason, it offers them high returns on their deposits and charges low interest on the mortgage loans. These banks must not be confused with commercial banking institutions. The types are savings bank, private development bank, and stock savings and loan associations.
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