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.

What Is a Savings and Loan (S&L) Association?

Savings and loans are 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 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.

Pros and Cons: Using a Savings and Loan (S&L) Association

S&Ls are financial institutions that focus mainly on accepting deposits and making mortgage loans. One advantage of using an S&L is their strong focus on home lending. Borrowers may find more favorable terms or more personalized service when applying for a mortgage compared to larger commercial banks.

Another benefit is that S&Ls are often community-based. This can make them more accessible and customer-friendly, especially for local residents. They may also offer competitive rates on savings accounts and certificates of deposit (CDs), making them a good option for conservative savers.

However, S&Ls typically offer fewer financial products than larger banks. They may not have the same technology, investment options, or mobile banking tools. Also, because their lending is more concentrated in real estate, S&Ls can face greater financial risks during housing market downturns.

The Savings and Loan (S&L) Association Crisis

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 almost 550 federally insured savings associations.

Savings and Loan (S&L) Association 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.

S&L vs. Bank or Credit Union: Which Should You Use?

S&Ls can be a useful option for borrowers who are focused on homeownership, as they traditionally offer mortgages with more flexible lending standards than large commercial banks. If a borrower is having difficulty qualifying for a mortgage due to limited credit history, a small down payment, or unique property considerations, a local S&L may offer more accommodating terms than a bank that sells loans to investors.

For depositors, S&Ls generally operate similarly to banks and credit unions. They both offer savings accounts, checking accounts and sometimes CDs. However, they may not provide as wide a range of financial services as commercial banks. If you need access to business banking, credit cards, or advanced financial tools, a larger bank or credit union might be a better fit. Still, depositors seeking a community-focused institution with personalized service may prefer a local S&L.

Credit unions also focus on community and membership, but differ in structure and access. Unlike S&Ls, credit unions are nonprofit cooperatives owned by members. They often provide competitive loan rates and fewer fees, but require membership eligibility based on employer, geography, or other criteria. Choosing between an S&L, bank, or credit union often depends on what kind of financial product you need and your preference for local, flexible service versus broader offerings and digital access.

Bottom Line

A key in a lock. The keychain is in the shape of a house.

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 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.