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What Is a Savings and Loan?


Savings and loan associations are financial institutions similar to banks that specialize in providing mortgage loans to home buyers, making loans from deposits usually gathered from the local community. Both borrowers and depositors are considered members rather than just customers of these institutions, and it can be easier to get a loan from a savings and loan association than from a commercial bank or other lender.  A financial advisor can help you evaluate your borrowing and banking decisions.

S&L Basics

Savings and loans are also often called S&Ls, thrifts or savings banks. They are financial institutions that can be considered a type of bank, although they generally do not offer all the services of a typical bank. Their primary functions are to take deposits and make home loans.

Most S&Ls are small and serve their local communities. Many have initials such as F.S.B. after their names, indicating that they are a Federal Savings Bank regulated chartered and regulated by the federal Office of the Comptroller of the Currency. Other S&Ls are chartered by their respective state regulators and are supervised by the Federal Deposit Insurance Corporation, which also insures depositors against losing money if the S&L should fail.

Savings and loans have been around in the U.S. since the early 19th century and were initially called “building and loans.” They have been through periods of expansion and retraction in response to economic and regulatory trends.

The S&L Crisis

What Is a Savings and Loan?

S&Ls were at the center of a major financial crisis in the 1980s. The crisis developed when rising interest rates undermined the S&Ls’ basic business model. Federal laws limited the interest rates S&Ls could pay depositors, so they couldn’t attract money to make loans and many savers withdrew deposits to earn higher rates elsewhere. At the same time, the fixed-rate mortgages the S&Ls owned lost a great deal of value.

Rules restricting S&L practices were relaxed. This, coupled with poor regulatory oversight, led S&Ls to offer overly high rates to depositors and make increasingly risky loans. Significant mismanagement and some cases of criminal behavior by S&L leaders caused many institutions to fail and required a massive federal bailout.

At the beginning of the 1980s, there were almost 4,000 S&Ls. But during the following decade, several hundred insolvent thrifts were closed by regulators and many more were absorbed by healthier institutions. The FDIC reports there currently are about 600 federally insured savings associations.

S&L Services                                                                   

Historically, S&Ls mainly existed to provide real estate loans, especially to home buyers. They get the money to make these loans by attracting deposits. At one time, there were a number of large thrifts that served regional and even national markets. However, these days almost all thrifts are small institutions sourcing both loans and deposits locally.

As local institutions owned by members, thrifts may have looser lending standards. Borrowers may find it easier to qualify for a loan from a local S&L. Thrifts can be more flexible with borrowers because of the way they handle their loans.

Most mortgage lenders sell the loans they have made to investors, which impose strict standards on borrowers to maintain quality. S&Ls are more likely to keep the loans, collecting borrowers’ interest and principal payments and using those funds to issue more loans rather than generating capital by selling loans to investors. S&Ls can thus be more lenient with borrowers than investor-driven underwriting standards allow.

While they once offered little more than basic passbook savings accounts and fixed-rate home mortgages, today most S&Ls have branched out to give their members a broader array of offerings. Many provide checking accounts, debit cards and, often through partnerships with commercial banks, credit cards. They also provide banking services to businesses, including loans for purposes unrelated to real estate.

Bottom Line

What Is a Savings and Loan?

Savings and loan associations are financial institutions that regard depositors and borrowers as members. They focus largely on gathering deposits from chiefly local savers and providing mortgage loans to home buyers. A local S&L can help a home buyer qualify for a loan when other lenders decline.

Tips on Choosing a Financial Institution

  • Decisions about where to deposit your savings or borrow for a home or other major purchase can benefit from the input of a financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • . You don’t have to begin the process of selecting a bank in the dark. SmartAsset’s listing of the best banks can help you identify the financial institution most likely to serve your interests. The listing covers major and online banks as well as credit unions and identifies the best institutions for savings accounts, students and small businesses.

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