What Are Thrifts?
Even though thrifts aren't as common as they once were, they still play a key role in many people's financial lives. I'm talking about savings and loan associations, but the term also covers credit unions and mutual savings banks that offer various savings and loan options. What sets thrifts apart from commercial banks is their ability to borrow from the Federal Home Loan Bank System, which lets them offer you higher interest rates on your savings.
Understanding Thrifts
Thrifts, just like commercial banks and credit unions, count as depository institutions. You probably know commercial banks and credit unions well, but thrifts can be a bit less clear. Essentially, they're savings and loan associations designed to help your savings grow at a higher interest rate. More crucially, they focus on real estate as savings banks.
Back in the day, thrifts only handled savings accounts and time deposits, but over the last 20 years, they've broadened their services to better serve everyday consumers like you. Now, they provide the same kinds of products you'd find at credit unions or commercial banks.
Commercial Banks vs. Thrifts
Commercial banks operate like most corporations, aiming for profit without a specific focus on any asset class. Shareholders own them, and their main goal is to increase earnings. The powers they have come from state and federal laws, which issue their charters.
Corporate charters and laws at both levels define what commercial banks can do. They get deposit insurance from the FDIC and fall under the Federal Reserve System. What they might lack in savings rates, they make up for in convenience, with thousands of branches across the country, so you're covered if you need a local office during travel.
On the other hand, thrifts specialize in mortgages and real estate loans. Their primary duty is to members, not to profits. Like commercial banks, they can be chartered by the OCC or the state, and the FDIC insures them. Thrifts usually keep their loans in-house instead of securitizing them, which means if your profile doesn't fit standard agency mortgage rules, you might have better luck getting a loan from a local thrift than from a big national bank.
Qualified Thrift Lender
Because of their charter, thrifts have to concentrate on housing-related assets and must belong to the Federal Home Loan Bank System. Originally, they needed at least 65% of their portfolio in these assets, known as the qualified thrift lender (QTL) test, to stick to their founding purpose.
Passing the QTL test lets thrifts borrow from the Federal Home Loan Bank System, which means they can offer you higher interest on deposits than commercial banks do.
Other articles for you
The International Monetary Market is a CME division for trading currency and interest rate futures and options.
Gross profit is a company's profit after subtracting the cost of goods sold from revenue, focusing on production efficiency.
An amalgamation is the process where two or more companies combine to form a entirely new entity, distinct from acquisitions.
The C-suite refers to a company's top executives like CEOs and CFOs who handle strategic decisions and overall management.
The book-to-bill ratio compares orders received to units shipped and billed to gauge demand strength in sectors like technology and semiconductors.
The Korea Investment Corporation manages South Korea's sovereign wealth fund to enhance national wealth and promote sustainable investments.
Long-term incentive plans reward employees for achieving goals that boost shareholder value and promote company growth.
An evergreen contract automatically renews indefinitely until terminated by notice.
Distribution waterfalls structure how returns are allocated in private equity funds among investors and managers.
Vanguard ETFs offer diversified, low-cost investment options that track various indexes and trade like stocks.
Other articles for you
The 130-30 strategy is a long/short equity approach where investors allocate 130% to long positions by shorting 30% of capital to buy high-performing stocks.
The Office of the Comptroller of the Currency is a federal agency that charters, regulates, and supervises national banks and federal savings associations in the United States.
Risk control involves methods to identify, assess, and mitigate business risks to minimize losses and ensure operational stability.
Future value calculates the worth of a current asset at a future date based on an assumed growth rate to aid in investment planning.
Zoning ordinances regulate land use in specific areas to separate residential, commercial, and other purposes while managing development details like lot size and building height.
Hyperledger Explorer is an open-source tool for viewing and interacting with data on Hyperledger blockchain networks through a user-friendly web interface.
Indemnity insurance compensates professionals and businesses for losses due to negligence or errors, covering legal costs and settlements.
A recessionary gap occurs when a country's real GDP falls below its potential at full employment, leading to economic downturns and higher unemployment.
Transfer payments are government-distributed funds to individuals without requiring goods or services in return, aimed at wealth redistribution and economic support.
Opaque pricing is a strategy where companies offer hidden lower prices to price-sensitive customers, commonly used in travel to manage inventory without harming brand integrity.