Definition of Mutual Association
A Mutual Association is a type of financial institution similar to a Savings and Loan Association (S&L) but organized as a cooperative. It is owned and operated by its members, whose deposits represent shares in the association. Members are also shareholders who have the right to vote on important association-related matters and, in return, receive income in the form of dividends based on the institution’s financial performance.
Examples of Mutual Associations
- Building Societies in the United Kingdom: These organizations operate as mutual associations, providing mortgage lending as well as savings accounts. Members share profits in the form of higher interest rates on savings and lower mortgage rates.
- Credit Unions in the United States: Credit unions are member-owned financial cooperatives that provide traditional banking services. Profits are redistributed to members through lower fees, higher savings interest rates, and lower loan rates.
Frequently Asked Questions (FAQs)
What is the difference between a Mutual Association and a Savings and Loan Association?
A Savings and Loan Association (S&L) may be organized either as a mutual (owned by its members) or as a stock institution (owned by shareholders). A Mutual Association, however, is specifically organized as a cooperative owned and controlled by its members.
How do members earn dividends in a Mutual Association?
Dividends in a Mutual Association are earned based on the institution’s overall financial performance. Profit is distributed to members in proportion to the amount of shares (deposits) each member owns.
Can anyone join a Mutual Association?
Membership typically requires an initial deposit or the purchase of a share. Some mutual associations may have additional requirements related to location, occupation, or other specific criteria.
What are the benefits of a Mutual Association?
Members benefit from a say in the association’s operations, potentially higher returns on savings, lower borrowing rates, and the ability to vote on crucial business decisions.
Are Mutual Associations insured?
In the U.S., deposits in Mutual Associations are insured by the Federal Deposit Insurance Corporation (FDIC), up to the current legal limit.
Related Terms with Definitions
- Cooperative: An autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.
- Dividends: A distribution of a portion of a company’s earnings, decided by the board of directors, given to a class of its shareholders.
- Shareholders: Individuals or entities that own shares in a corporation or mutual association and have the right to vote on certain corporate matters.
- Credit Union: A member-owned financial cooperative, controlled by its members and operated on the principle of people helping people, providing credit at competitive rates and other financial services.
Online References to Online Resources
- National Credit Union Administration (NCUA)
- Building Societies Association (BSA)
- Investopedia - Credit Unions
- Federal Deposit Insurance Corporation (FDIC)
Suggested Books for Further Studies
- “Mutual Benefit: The Transformative Power of Giving and Community Membership” by Sharon Zukin
- “Credit Union and Building Society Finance” by Keith Pond
- “The Cooperative Business Movement, 1950 to the Present” by Patrizia Battilani and Hans J. van der Velden
- “The Business of Mutual Associations” by John Thompson
Fundamentals of Mutual Association: Finance Basics Quiz
Thank you for studying the principles of Mutual Associations. Your understanding of these member-owned financial institutions will help you appreciate their unique structure and benefits.
