What Is a Mutual Savings Bank?

A mutual savings bank (MSB) is a type of financial institution that functions much like a bank, but with a different ownership structure. Instead of shareholders owning marketable shares, a mutual savings bank is owned by its depositors, much like a credit union. Unlike a credit union, however, the mutual savings bank operates to create profit for its shareholder members.

Mutual savings banks date to the early 19th century in the U.S. They were originally designed to assist low-income account holders by investing in mortgages.

How Do Mutual Savings Banks Work?

Mutual savings banks function much like banks or credit unions, and offer much the same services. However, a mutual savings bank is owned by its depositors, not stockholders, and this means that an MSB’s profits are distributed to the depositors, typically in the form of higher rates on deposits and lower borrowing rates.

Mutual Savings Bank vs. Mutual Holding Company

A mutual holding company results from the conversion of a mutual institution, like a mutual savings bank, into a parent company of a subsidiary stock company. As a result of the conversion, the parent company (the mutual institution) owns a portion of the subsidiary stock company, and the subsidiary stock company receives all of the assets and liabilities of the original mutual company.

Mutual Savings Bank vs. Credit Union

A credit union is a not-for-profit financial institution owned by its members or depositors, who need to meet certain requirements to become a customer. Membership may be based on employment status, union membership, or military service. Although similar to a credit union in that both are depositor owned, a mutual savings bank is a for-profit venture.

Mutual Savings Bank vs. Commercial Bank

Commercial banks offer loans to small businesses, consumer loans, mortgages, credit cards, deposit products, and checking accounts. They might also offer insurance and investment products like mutual funds and IRAs through separate companies under the same bank holding company umbrella. Many banks also offer trust services, estate planning, and asset management through their financial planning service arm.

Commercial banks come in the form of megabanks with hundreds or thousands of branches to community banks that specialize in serving the needs of the local customers. Many banks are publicly held corporations.