Savings and Loan Association (Thrift Institution)

Definition

The term savings and loan association refers to a financial institution that specializes in writing local loans and mortgages, while accepting deposits from investors.  Historically, savings and loans were able to provide depositors and borrowers with more attractive interest rates than commercial banks.

Explanation

Also known as a thrift institution, a savings and loan (S&L) association is a financial institution that specializes in accepting deposits, writing personal loans, and supplying mortgages.  Traditionally, these associations were established to provide local communities with more attractive interest rates than those available from commercial banks.  This was possible due to the cooperative ownership of these institutions; borrowers and depositors can have voting rights and limited control over the managerial decision making process.

Savings and loan associations are normally either state or federally chartered institutions.  Following the failure of several well-known S&Ls in the mid-1980s, the popularity of these institutions declined significantly during the 1990s. This industry was re-regulated in the late 1980s to reestablish faith and stability to the industry, including offering depositors protections through the FDIC insurance program.

Related Terms

credit union, financial system, national bank, central bank