What Is a Mutual Savings Bank (MSB)?

Mutual Savings Bank Explained

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A mutual savings bank (MSB) is a financial institution that’s owned by the people who deposit money there unlike a traditional bank that’s owned by shareholders. 

MSBs date back to the 1800s when they were created to help working-class families earn interest on their savings. Today, they resemble credit unions in the way they operate, but there are some key differences to be aware of.

Definition and Examples of a Mutual Savings Bank 

A mutual savings bank is a type of thrift institution that’s owned, but not controlled, by the people who use its services. MSBs offer many of the same products you’d find at a regular bank, including checking accounts, savings accounts, CDs, home loans, and credit cards. Similar to credit unions, they’re community-based institutions focused on providing traditional banking services to local consumers in their area. 

Although MSBs are owned by the people who hold deposits there, these people are neither stockholders nor members. They have no say in how the bank operates or uses its money. They simply earn interest on their accounts in the form of dividends. 

  • Acronym: MSB
  • Alternate name: mutual institution; savings bank

MSBs aren’t as popular as they once were, but 449 of them still exist today, according to data from the FDIC. The five largest mutual savings banks by asset size include:

  1. Eastern Bank
  2. Third Federal Savings and Loan Association of Cleveland
  3. Dollar Bank and Federal Savings Bank (owned by the same parent company)
  4. Columbia Bank
  5. Liberty Bank

How a Mutual Savings Bank Works

Today, mutual savings banks operate as full-service institutions, offering all the same services you’d find at a regular bank or credit union

Take Liberty Bank, for example. It’s the largest mutual savings bank in Connecticut, with 62 local branches and more than $7 billion in assets under management. It offers almost every type of banking product, including personal and business accounts, digital banking, mortgages, loans, insurance, and even investment services.

But MSBs didn’t always look like this.

How Mutual Savings Banks Got Their Start

The first mutual savings bank was created in Philadelphia in 1816 as a way to give working-class families a safe place to store their money and earn interest. This was pretty revolutionary at the time, considering most banks shut out low-wage workers in favor of working with retail and commercial businesses instead.

At their inception, MSBs were philanthropic-forward, funded by wealthy individuals who sought no form of profit or repayment in return. 

Initially, MSBs only offered federal and state government bonds. But within a few years, their services grew to include industrial bonds, blue-chip stocks, mortgage loans, and other collateralized lendings. By the end of World War II, mortgage loans were the biggest moneymaker for MSBs, making up 75% of the industry’s assets.

MSBs began to pop up everywhere in the U.S. between 1820 and 1910, as the total number of institutions skyrocketed from 10 to 637. But this heyday came to an end in the 1970s and ‘80s as rising interest rates, increased competition, and legal regulations led to the entire MSB industry operating at a $3.3 billion loss by the early 1980s. Today, the most successful mutual savings banks are those that operate under mutual holding companies.

Pros and Cons of a Mutual Savings Bank 

  • Depositor-owned

  • Friendly customer service

  • FDIC-insured deposits

  • Community-focused

  • Not controlled by depositors

  • No large, national presence

  • Many are going public to raise money

  • Behind the times in terms of technology

Pros Explained

  • Depositor-owned: While traditional banks have their shareholders’ best interests at heart, MSBs are there to serve you, the customer. As such, they have more of an incentive to keep you happy and satisfied.
  • Friendly customer service: Similar to credit unions, MSBs are known for having friendly customer service representatives who take the time to build lasting relationships with you. 
  • FDIC-insured deposits: Similar to traditional banks, MSB deposits are FDIC-insured up to the legal limit, so you can have peace of mind knowing you’d get your money back if the bank went under.
  • Community-focused: MSBs focus on serving their local communities, whether it’s by building relationships with depositors, offering competitive interest rates, or giving back to the community.

Cons Explained

  • Not controlled by members: Being part “owner” of an MSB sounds great, but you have no say in how the company is operated or what it does with its assets. 
  • No large, national presence: A small, localized presence means it may be harder to access your money when traveling abroad or out of state. You may also have smaller customer service windows than you would with a nationwide bank that operates 24/7.
  • Many are going public to raise money: Many MSBs are converting from mutual forms to stock forms to raise money, expand operations, and compete with larger banks. Although you get first dibs on stock purchases as an “owner” of the company, over time, the qualities that make MSBs attractive may start to diminish as they begin to look like every other bank.
  • Behind the times in terms of technology: MSBs are often smaller institutions that have to merge with larger institutions to compete with the IT infrastructure and sleek user interfaces offered by big-name banks like Chase and Citibank. 

Mutual Savings Bank vs. Credit Union

On the surface, MSBs and credit unions look the same: They’re owned by depositors instead of shareholders, they serve the community, and they’re known for having attractive interest rates and good customer service.

This chart highlights their differences:

Mutual Savings Bank Credit Union
Deposits are insured by the Federal Deposit Insurance Corporation (FDIC) Deposits are insured by the National Credit Union Administration (NCUA)
Owned by the people but operates as a for-profit institution Owned by the people but operates as a non-profit institution
Example: Federal Savings Bank Example: Navy Federal Credit Union

Mutual Savings Bank vs. Commercial Bank

The differences between MSBs and commercial banks have diminished over time. Today, it’s quite common for both institutions to offer the same services. 

The primary difference is in how they’re operated: MSBs are depositor-owned, while commercial banks are shareholder-owned. 

Mutual Savings Bank Commercial Bank
Depositor-owned Shareholder-owned
May offer both consumer and commercial banking services May offer both consumer and commercial banking services
Example: Liberty Bank Example: Bank of America

Mutual Savings Bank vs. Mutual Holding Company

Mutual savings banks can either operate on their own, or convert into mutual holding companies so they can raise capital, expand their operations, and possibly issue stock. 

For example, out of the five largest MSBs in the U.S. Liberty Bank is the only one not categorized as a mutual holding company. In other words, it’s the only one that’s truly still depositor-owned.

Mutual Savings Bank Mutual Holding Company
A financial institution that’s depositor-owned A parent company that has acquired an MSB, mutual insurance company, or mutual savings and loan institution
Can convert into a mutual holding company if it wants to expand operations or go public Issues stock to the public on behalf of the mutual company
Example: Eastern Bank Example: Eastern Bank Corporation

Key Takeaways

  • A mutual savings bank, also known as an MSB, is a type of thrift institution that’s owned by the people who hold deposits there. 
  • MSBs offer many of the same products you’d find at a regular bank, including checking accounts, savings accounts, CDs, home loans, credit cards, commercial banking services, and more. 
  • Like credit unions, mutual saving banks are community-based institutions. But while credit unions are non-profit and NCUA-insured, MSBs are for-profit and FDIC-insured.
  • The number of MSBs in the U.S. has dwindled over the years. The largest MSBs today operate under mutual holding companies that allow them to raise capital, expand operations, and compete with larger banks.