What is a Thrift Bank?

Earlier, thrift banks confine to offering time deposits and savings accounts. Still, with the change in customer behavior, preferences, needs, and expectations, these banks started offering various products and services from 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 relieve the monopoly stress and offer their account holders facilities like savings accounts, mortgage loans, etc. The purpose is to accept deposits and provide mortgage loans to their customers.The interest on the savings deposited by the customers in the bank is high. In contrast, the customers’ curiosity about the mortgage loan is relatively lower than commercial banks and credit unions.They formed these thrift banks to offer their customers mortgage loan facilities, enabling 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 offer mortgages at lower costs and savings accounts that pay a higher rate of interest in comparison to national and international banking institutions. These banks operate in the best interest of the local people. For this reason, they offer savings accounts and mortgage loans that could benefit the locals.

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Types

The types are below provided and discussed: –

  • Savings Bank- These banks generate funds from selling savings to customers and investing in mortgage loans.Private Development Bank- These banks are formed to support government policies.Stock Savings and Loan Associations- A locally or privately managed financial banking institution that takes long-term deposits to provide amortized home loans.

Examples of Thrift Bank

Various banks are operating as thrifts. A few of them are below: –

  • Allied Savings Bank (Now PNB Savings Bank)City Savings BankBusiness and Consumers Bank (A Development Bank)Citystate Savings BankBank One Savings and Trust CorporationLegazpi Savings Bank, Inc.Luzon Development BankDumaguete City Development BankEIB Savings Bank, Inc.LBC Development BankLemery Savings and Loan Bank, Inc.Cordillera Savings Bank, Inc.Sampaguita Savings Bank, Inc.GSIS Family BankLiberty Savings Bank Inc.BDO Elite Savings Bank, Inc.Inter-Asia Development BankISLA Bank, Inc.Life Savings Bank, Inc.

Thrift Bank vs. Commercial Bank

Thrift and commercial banks are different even though the former now offers similar services to commercial banking institutions and credit unions.

#1 – Commercial Banks

  • Commercial banks are profit-oriented. 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. As a result, these banks earn more profits to 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 successfully.The state and federal laws 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). Banking institutions procure deposit insurance from FDIC (Federal Deposit Insurance Corporation).

#2 – Thrift Bank

  • Thrift banks are such types of banking institutions that differ from commercial banks in terms of goals and objectives and are similar only in the case of offering products and services.Thrift banks, unlike commercial banks, are not profit-oriented. The thrifts must be a member of the FHLBS (Federal Home Loan Bank System).It emphasizes more assets that are related to housing. Unlike commercial banks, these offer loans at a lower interest rate and higher savings return to their customers.These banks are not profit-oriented. Rather, these are local people-oriented. These banks function to assist 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 owned mutually either by depositories or stockholders.

Conclusion

A thrift bank can also be called a savings and mortgage loan association. These are often termed savings banks that offer 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. In contrast, the others are held by their depositors.

These banks offer their customers a higher level of liquidityLiquidityLiquidity is the ease of converting assets or securities into cash.read more regarding mortgage loans and provide a higher yield for savings accounts. Thrifts initially offered facilities like time depositsTime DepositsTime deposit, also known as term deposit, refers to the deposit account with fixed maturity and interest rate.read more and savings accounts. Still, with the expansion of banking services and the change in customers’ expectations and requirements, these banks also started offering similar products compared to commercial banks and credit unions.

Thrift banks function to benefit the local people. For this reason, it offers them high returns on their deposits and charges low interest on mortgage loans. These banks must not be confused with commercial banking institutions. The types are savings, private development, stock savings, and loan associations.

This article is a guide to Thrift Bank and its meaning. Here, we discuss functions, types, and thrift bank examples along with its difference from commercial banks. You can learn more about financing from the following articles: –

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