The feeling's mutual when it comes to friendly way to invest

In the world of finance, a mutual is where the members are the shareholders. In theory, the staff are employed by those who save with the organisation and sometimes the borrowers, too.

Unlike companies where profits are generated largely for shareholders, a mutual ploughs back any 'surpluses' not required for operational purposes to its members. In addition, a mutual may pay a better interest rate to savers and/or charge a lower one to borrowers.

Such practices started as groups of people who depended on each other for their welfare, notably for help in sickness, old age or death of a family member. The earliest building societies pooled money to purchase land and build homes, starting in Birmingham in 1775. Most were called 'terminating' as the business was closed after all its members had built their houses.

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The two largest mutual groups today are building societies with over 356bn assets and the Association of Financial Mutuals whose members manage 78.7bn for almost 20m customers of friendly societies, mutual insurers and mutual healthcare providers.

A strong mutual sector gives diversity to the world of finance and often has a lower attitude to risk. The dominance of large banks and major shareholder-owned companies has been detrimental to both consumers and the long-term economic stability of the UK, according to Professor Jonathan Michie, director of the Oxford Centre for Mutual and Employee-Owned Business.

He even argues that such power was a factor in creating the credit crunch and recession. He has called for mutuals to be given a greater market share to place a real competitive pressure on the largest banks.

"Very little financial support has been made available to the mutual sector, which has had only limited access to the special liquidity scheme and credit guarantee scheme, whilst the Financial Services Compensation Scheme funding has actively discriminated against the mutual sector," says Adrian Coles, Director General of the Building Societies Association.

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Mutuals have always relied on funding their lending from retail savings, rather than via wholesale money, unlike many banks. This has resulted in disproportionate requirements to contribute to the compensation scheme in respect of failed institutions.

Certainly, the Financial Services Authority has not made life easy for smaller mutuals, many of whom serve a local community. The FSA has been using a sledgehammer by demanding high fees to regulate mutuals and thereby force them to either amalgamate or become inefficient through such charges.

There are 49 building societies remaining today from the giant Nationwide (190.5bn assets) to Scottish-based Century (24m). They include three in Wales and two in Northern Ireland. Five still have their headquarters in Yorkshire:

n Yorkshire (which Haywards Heath joined in 1992, Gainsborough in 2001, Barnsley in 2008 and Chelsea in April this year) with 25.2bn;

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n Skipton (which Scarborough joined in March 2009 and Chesham in June 2010) 15.9bn;

n Leeds (which Leeds & Holbeck joined in 2005 and Mercantile in 2006) with 9.6bn;

n Beverley with 165m;

n The Ecology in Keighley with 94m.

Apart from the above mergers, there have been many other amalgamations in recent years: Stroud & Swindon to Coventry, Britannia to Co-operative Financial Services, Barnsley to Yorkshire, Catholic to Chelsea, Universal to Newcastle, Lambeth to Portman and Clay Cross to Derbyshire.

The Nationwide, the UK's largest mutual, has absorbed the most: Derbyshire, Dunfer-mline, Cheshire and Portman.

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Few realise who now own the demutualised building societies: Abbey, Alliance & Leicester and Bradford & Bingley (all Santander), Birmingham Midshires and Cheltenham & Gloucester as well as Halifax (Lloyds), Bristol & West (Co-op Financial), Woolwich (Barclays).

If you hold an old pass book, check the current provider using the website www.mylostaccount.org.uk or call the Building Societies Association on 020 7520 5900.

For savings, mutuals are the current winners if short-term bonuses are disregarded. For easy access, Nationwide's MySave Online pays 2.99 per cent, Manchester on 2.31 per cent and West Bromwich with 2.61 per cent via the internet. For monthly savers, four per cent is paid by both mutual (Chorley, Principality and Saffron) and non-mutual (Santander) although the starting sums are lower with two of the mutuals (1 and 10 with Chorley and Saffron respectively).

On fixed rate bonds, Skipton is top for one year at 3.3 per cent and Nottingham over four years with 4.2 per cent, according to Moneyfacts. Take care with some non-mutuals like Bank of Cyprus (4.15 per cent over three years) as it is not covered by the UK's Financial Services Compensation Scheme.

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On cash ISAs, non-mutuals score: Santander (2.85 per cent) instant access and Halifax (4.25 per cent for four years). For mortgages, Leeds wins the discount offer without extended redemption penalty at 2.45 per cent whilst Clydesdale Bank is 2.59 per cent. For fixed rate, both Yorkshire Building Society and Santander offer 2.69 per cent whilst for offset mortgages, both First Direct and Yorkshire charge 2.39 per cent.

The unique tax-exempt savings plan available from friendly societies is still little known, perhaps because it is capped at 270 annually or 25 monthly.

Few organisations can better the returns on such plans from the top Yorkshire friendly societies: 13.5 per cent from Sheffield Mutual and 11 per cent from Druids Sheffield based on 25 monthly policies over 10 years maturing at the end of last year.

For those seeking a strong ethical stance, two mutuals stand out: Co-operative Financial Services and Ecology Building Society. The former is owned by 6.5m members and has raised over 3m for 80 charities through its 'customers who care' campaign. Despite the banking crisis, it has delivered strong profitability and growth.

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The Yorkshire-based Ecology was founded in 1980 by 10 people, each putting up 500. It assesses the environmental impact and encourages the use of reclaimed stone, brick, slates or timber, locally sourced materials, high levels of insulation, double or triple glazing and renewable energy systems.

A sense of belonging

Tony Ringrose, 70, is a retired police officer who, together with his wife, Pauline, have several products with a leading financial mutual. The couple live in Horsforth, Leeds.

"At my stage of life, I have to be sure my investments are being well looked after. As I am retired, I do not have the opportunity of replacing lost capital by taking employment," says Tony, who has chosen the Leeds Building Society, the fourth largest in the UK.

One important factor for Tony in selecting the Leeds is its mutual status. He said: "I feel I am part of the organisation, a voting shareholder, which is important."