Thrift Associations: What They Are and How They Work

What is a thrift?

A thrift (often called a savings and loan association) is a depository institution that historically focused on taking deposits and making home mortgages. The term is sometimes used broadly to include mutual savings banks and credit unions that provide similar savings and lending services. Thrifts are organized to serve depositors and local borrowers, with an emphasis on real estate and housing-related lending.

How thrifts operate

• Charter and regulation: Thrifts can be chartered at the state level or by federal authorities. They are insured by the Federal Deposit Insurance Corporation (FDIC).
• Membership in the Federal Home Loan Bank System: Thrifts are typically members of this system, which provides liquidity and funding support.
• Product mix: While originally limited to savings accounts and time deposits, thrifts now offer a full range of consumer banking products similar to commercial banks and credit unions (checking accounts, loans, mortgages, online banking, etc.).
• Loan retention: Thrifts are more likely than some large commercial banks to retain mortgage loans on their books rather than immediately securitizing them, which can allow more flexible underwriting for borrowers who don’t fit standard agency guidelines.

Thrifts vs. commercial banks

• Purpose and ownership: Commercial banks are usually shareholder-owned, profit-driven corporations with broad lending powers across asset classes. Thrifts were created with a mission to promote homeownership and historically prioritize members’ savings and mortgage lending.
• Product and convenience: Commercial banks typically offer extensive branch networks and convenience. Thrifts specialize in housing finance and may offer more personalized underwriting for local borrowers.
• Regulation and insurance: Both types of institutions can be federally or state-chartered and receive FDIC insurance; their specific supervisory agencies and powers depend on their charter.

Qualified Thrift Lender (QTL) requirement

Thrifts have historically been subject to a Qualified Thrift Lender (QTL) test, which required a minimum percentage of assets to be housing-related (traditionally 65%). Meeting QTL standards grants thrifts access to the Federal Home Loan Bank System’s borrowing programs. That access helps thrifts manage liquidity and can enable more competitive deposit rates for customers compared with some commercial banks.

Benefits for consumers

• Potentially higher interest on savings due to access to Federal Home Loan Bank funding.
• Specialized mortgage expertise and possibly more flexible underwriting for local or nonstandard borrowers.
• Full-service consumer products in many modern thrifts, combining community focus with services comparable to larger banks.

Key takeaways

Thrifts remain an important segment of the U.S. banking system, distinguished by their historical focus on housing finance and member-oriented mission. Although their product offerings now largely mirror those of commercial banks, thrifts can offer advantages for savers and mortgage borrowers through their funding relationships and local lending practices.