The financial sector moves money between people

1. Some people and firms have money they do not need yet, and others need money they do not yet have; the sector's core job is to connect the two.
2. It does that by taking in savings and lending them out, so a household's deposit becomes another household's mortgage.
3. Without it, saving and borrowing would each have to be arranged person to person, which almost nobody could do at the scale a modern economy needs.
4. UK financial and related professional services produced about 11% of real UK output in 2025, roughly £290 billion (Source: TheCityUK).

Banks take deposits and make loans

1. Deposits: a bank holds money safely and pays interest on it, and deposits are protected up to £120,000 per person per firm by the Financial Services Compensation Scheme, a limit raised from £85,000 in December 2025 (Source: FSCS).
2. Loans: the same money is lent to households and firms as mortgages, overdrafts, credit cards and business loans.
3. The bank's income is the gap between the two rates, so in July 2026 the average rate on new fixed-term deposits was 4.21% while new mortgages averaged 4.45% (Source: Bank of England).
4. Banks are regulated by the Financial Conduct Authority and the Prudential Regulation Authority, which is what makes people willing to hand over their money in the first place.

Building societies are owned by their members

1. A bank is owned by shareholders who expect a share of the profit, while a building society is a mutual and belongs to its own customers.
2. Because there are no outside shareholders to pay, a society can return its surplus to members through better savings rates or cheaper mortgages.
3. Societies must also raise most of their funding from members rather than from financial markets, which limits how they grow but makes them harder to destabilise.
4. Nationwide is the largest UK building society, and societies as a group compete directly with banks in the mortgage and savings markets (Source: Building Societies Association).

Insurance companies pool risk across many customers

1. A house fire is unaffordable for one household but predictable across a million of them, so insurance turns a possible disaster into a small regular cost.
2. The insurer can do this because it only has to hold enough to cover the losses it expects, not enough to rebuild every house it covers.
3. This matters to the whole economy, because firms will not invest in ships, factories or lorries they cannot insure.
4. The UK insurance and long-term savings industry manages around £1.4 trillion of investments (Source: ABI), and insurance employed 314,000 people in the UK in 2024 (Source: TheCityUK).

The sector keeps payments moving too

1. Every card tap, direct debit and bank transfer runs through the sector, which is what lets money work as the medium of exchange in 2.8.1.
2. Payments have to clear reliably and fast, and only 8% of the 49.7 billion UK payments made in 2025 were in cash (Source: UK Finance).
3. The sector also holds and moves money for the government, and how the Bank of England uses interest rates for policy is a separate matter covered in 3.6.1.