IMPACT OF ALL SAVERS CERTIFICATES ON SAVINGS 

Report of the Secretary of the Treasury 

to the United States Congress 

Pursuant to Section 301 (c) 

Public Law 97-34 

Economic Recovery Tax Act of 1981 

U.S. Department of the Treasury 

Washington, D.C. 

Hay 1984 
DEPARTMENT OF THE TREASURY 

WASHINGTON, D .C . 20220 

ASSISTANT SECRETARY 

MAY 1 7 1984 

Dear Mr. President: 

Section 301 of the Economic Recovery Tax Act of 1981 

provides that "The Secretary of the Treasury or his delegate 

shall conduct a study of the exemption from income of 

interest earned on depository institution tax-exempt savings 

certificates established by this section to determine the 

exemption's effectiveness in generating additional savings." 

Pursuant to t h at section, I hereby submit a study on 

"The Impact of All-Savers Certificates on Savings." 

I am sending a similar letter to Thomas P. O'Neill, 

Speaker of the House. 

The Honorable 

George Bush 

President of the Senate 

Washington, OC 20510 

Enclosure 

s· cerely, 

~- :J(_ )- i:.' rt 

ohn E. Chapoton 

ssistant Secret ry 

(Tax Policy) 
DEPARTMENT OF THE TREASURY 

WASHINGTON, D .C. 20220 

ASSISTANT SECRETARY 

MAY 1 7 1984 

Dear Mr. Chairman: 

Section 301 of the Economic Recovery Tax Act of 1981 

provides that "The Secretary of the Treasury or his delegate 

shall conduct a study of the exemption from income of 

interest earned on depository institution tax-exempt savings 

certificates established by this section to determine the 

exemption's effectiveness in generating additional savings." 

Pursuant to that section, I hereby submit a study on 

"The Impact of All-Savers Certificates on Savings." 

I am sending a similar letter to the Speaker of the 

House and to the Chairman of the Committee on Finance. 

The Honorable 

Dan Rostenkows'ki, Chairman 

Committee on Ways and Means 

House of Representatives 

Washington, D.C. 20515 

Enclosure 

Sincerely, 

rlt: /.:1! ( John E. Chapoto~ - \.__: 

/ ssistant Secretiry 

(Tax Pol icy) 
DEPARTMENT OF THE TREASURY 

WASHINGTON. D.C. 20220 

ASSISTANT SECRETARY 

MAY 1 7 1984 

Dear Mr. Chairman: 

Section 301 of the Economic Recovery Tax Act of 1981 

provides that "The Secretary of the Treasury or his delegate 

shall conduct a study of the exemption from income of 

interest earned on depository institution tax-exempt savings 

certificates established by this section to determine the 

exemption's effectiveness in generating additional savings." 

Pursuant to that section, I hereby submit a study on "The 

Impact of All-Savers Certificates on Savings." 

I am sending a similar letter to the President of the 

Senate, and the Chairman of the Committee on Ways and Means. 

The Honorable 

Robert Dole 

Chairman, Committee On Finance 

United States Senate 

Washington, D.C. 20510 

Enclosure 

Sincerely, 

.;• <-: .. ··::L· . -- ·/ / , ~ 1-L lf, /t,~ John E. Chap;{-~~ Assistant Secretary 

(Tax Policy) 
/ ./ 

DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

ASSISTANT SECRETARY 

MAY 1 7 1984 

Dear Mr. Speaker: 

Section 301 of the Economic Recovery Tax Act of 1981 

provides that "The Secretary of the Treasury or his delegate 

shall conduct a study of the exemption from income of 

i nterest earned on depository institution tax-exempt savings 

certificates established by this section to determine the 

exemption's effectiveness in generating additional savings. 11 

Pursuant to that section, I hereby submit a study on 11 The Impact of All-Savers Certificates on Savings. 11 

I am sending a similar letter to George Bush, President of 

the Senate. 

The Honorable 

Thomas P. O'Neill, Jr . 

Speaker of the House 

of Representatives 

Washington, DC 20515 

Enclosure 

Sincerely, 

i J tt~ ;!_- John E. Chapot n '-

Assistant Seer tary 

(Tax Pol icy) 
Impact of All Savers Certificates on Savings 

Background 

The Economic Recovery Tax Act of 1981 included several 

savings provisions, among them the creation of All Savers 

Certificates. These certificates were to be offered by depository institutions: banks, savings and loan associations, and 

credit unions. The act limited the issuing authority to 15 

months, from October 1, 1981 to December 31, 1982, and limited 

the tax exclusion to a cumulative total of $1,000 of interest 

earned on such certificates ($2,000 for a joint return). The 

interest paid on these certificates was declared tax exempt, 

and the yield -was specified by law as equal to 70% of the average 

investment yield on United States Treasury bills with maturities 

of 52 weeks. This tax exempt yield would change with each new 

auction of Treasury bills. The certificates were to be made 

available in denominations of $500 and any other denomination at 

the discretion of the depository institution. 

Although the declared purpose of All Savers Certificates was 

to generate additional saving, the real purpose was generally 

conceded to be to reduce the cost of funds to depository institutions, particularly thrift institutions. Thus, the key provision, in addition to tax exemption, was the ceiling on the 

interest rate which could be paid. Without the ceiling, competition among issuers would have driven interest rates paid by 

eligible institutions to approximately the same level as paid on 

other financial instruments. This would have increased the 

after-tax return to depositors, as compared to taxable instruments, and increased the incentives to save, but it would have 
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provided no reduction in the cost of funds for thrifts. 

Congress, by enacting the ceiling, enabled thrifts to obtain 

funds more cheaply than they would have been able to otherwise. 

The tax exempt nature of the All Savers Certificates 

interest combined with its one year maturity made it attractive 

to individuals and households who had marginal tax rates above 

30% and who desired a short-term investment with great safety of 

principal. The penalty for early withdrawal (full inclusion of 

present and past interest in taxable income) made them somewhat 

illiquid. 

The Issue of All Savers Certificates 

In examining the impact of All-Savers Certificates on 

savings, it is worth asking 3 different questions: Who issued 

them? Who bought them? and Where did the funds come from? 

Tables 1 and 2 provide monthly statistics on the dollar value 

of All Savers Certificates, both as new issues and as the total 

stock outstanding. It appears that total issues during the life 

of the program amounted to around $55 billion.!/ More than half 

of all of the ASCs issued went out in the first month of the 

program, October 1981, and about 80 percent of all ASCs were 

issued in the first three months. Although the program was 

initially tailored to benefit savings and loan institutions, 

after the first month of the program more ASCs were issued each 

month by commercial banks than by the savings and loans. After 

December of 1981, commercial banks had the most ASCs' outstanding, followed by savings and loans; mutual savings banks 

.!/ Because the statistics are available only on a "net" basis, 

we cannot be certain of the precise figure. For example, 

while the "net" new issues in October 1982 were a negative 

$26 billion, this represented the cashing in of year-old 

certificates which was offset, but only in part, by the 

issuing of new ones. 
,----------- -

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Table 1 

All Savers Certificates 

(New Issues Net of Retirements) 

($millions) 

Savings . . Mutual 

and . . Commercial Savings : 

Loans : Banks : Banks . . Total 1/ 

October 1981 $14,980 $12,807 $ 2,299 $31,086 

November 2,660 4,139 849 7,648 

December 716 1,658 337 2, 711 

January 1982 854 1 ,018 309 2,221 

February 570 722 197 1,489 

March 810 991 263 2, 0 64 

April 580 692 186 1,458 

May 370 517 133 1,020 

June 330 247 189 766 

• 

July 380 428 30 838 

August 320 363 119 802 

September 246 398 142 7 86 

October -12, 876 -10,415 -2,882 -26,173 

November - 2,890 - 3, 519 762 - 7,171 

December 460 - 1,413 281 - 2,154 

January 1983 920 - 1,673est 178est - 2,771 F~bruary 590 500est 150est - 1,240 

March 700 SOOest lOOest - 1,300 

Office of the Secretary of the Treasury January 2 3, 1984 

Office of Tax Analysis 

I/ Excludes All Savers Certificates issued by Credit Unions. 

Source: Feder a 1 Ho.ne Loan Bank Board and Feder a 1 Reserve 

Board. 
Oetober 1981 

November 

Deeember 

January 1982 

February 

Mareh 

April 

May 

June 

July 

August 

September 

Oetober 

November 

December 

January 1983 

February 

March 

Offi ee of the 

-4-

Table 2 

All Savers Certificates 

(OUtstanrJing) 

($millions) 

Sav 1ngs ~utual 

and . Commereial . . . Savings 

Loan : Banks . . Banks 

$14' 980 $12,807 $ 3,299 

17,640 16,946 4,148 

18 '356 18' 604 4,485 

19' 210 19,662 4,794 

19 '780 20,384 4,991 

20,590 21,375 5,254 

21,170 22,1)67 5,440 

21, 54 0 22,584 5,573 

21,,1370 22,831 5,762 

22,250 23,259 5,792 

22,570 23,622 5,911 

22,816 24,020 6, 0 53 

9,940 13' 60 5 3,171 

7' 0 so 10,086 2,409 

6,590 8,673 2,128 

5,670 7, OOOest 1, 950est 

5,080 6, SOOest 1,800est 

4,380 6, OOOest 1, 700est 

Total 

$31,1)86 

38,734 

43' 74 5 

43,666 

45,155 

47,219 

48,677 

4 9, 6 97 

53·, 363 

51,301 

52,103 

52,889 

26,716 

19, 54 5 

18,591 

14,620 

13, 380 

12,080 

Seeretary of the Treasury January24; l984 

.!I 

l/ 

.!/ 

Offiee of Tax An a 1 y s i s 

1/ I nel udes, for December and June only, All Savers Certificates 

issued by Credit Unions. 

Source: Federal Home Loan Bank Board, F~deral Reserve Board, and 

Federal Financi~l Institutions Examination Council. 
-5-

and credit unions lagged far behind. Because they are so much 

smaller in the aggregate than commercial banks, savings and loans 

actually had ASC's making up a larger percentage of their 

deposits than banks did. 

Who Purchased All-Savers Certificates? 

The only information available on the purchasers of ASCs 

comes from individual tax returns. Taxpayers receiving interest 

from ASCs were required to indicate the amount on line lc of 

Schedule B attached to their Form 1040. The instructions 

specified that this line was to be filled out even if the amount 

received was less than $400, the normal "reporting threshold" for 

interest received. In Calendar Year 1981, about 6,000 indiv i dual 

tax returns reported ASC interest. The low response was presumably the result of the policy of many financial institutions to 

credit the interest only when the certificate matured, i.e., in 

198 2. 

Preliminary statistics for Calendar Year 1982 representing 

95 l / 2 million returns filed for that year are shown in Tables 3 

and 4. Slightly over $4 billion in interest was reported on 4 

million returns, representing an average of just over $1,000 per 

return. This last figure must be interpreted with care, however, 

for it represents an average over both single returns which had a 

ceiling of $1,000 and joint returns, which had a ceiling of 

$2,000. 

Looking at the breakdown by AGI (Adjusted Gross Income), 

we see that ASC interest was quite unusual for incomes under 

$50,000. This is hardly surprising, because at those income 

levels, tax rates are low enough that ASCs were probably not a 

sensible investment. For h igher income brackets, roughly a 

quarter of the returns reported ASC interest. All in all, 4% of 

all returns reported some ASC interest. 
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Table 3 

All-Savers Interest Reported on Tax Returns 

(Preliminary Statistics) 

AGI 

(Thousands) 

Onder 10 

10 - lS 

lS - 30 

30 - so 

so - 100 

100 - 200 

200 - soo 

: 

. . 

SOO - 1 million 

Over 1 million 

All 

Number 

of Returns 

(Thousands) 

307 

272 

1,094 

1,412 

804 

1S2 

39 

s 

2 

4,087 

. • 

Office-of the Secretary of the Treasury 

Office of Tax Analysis 

Share of 

All Returns 

(Percent) 

0.9% 

1.9 

4.0 

9.9 

21.0 

26.9 

28.0 

2S.9 

22.7 

4.3% 

. . 

. . Average 

Amount 

(Dollars) 

$ 708 

828 

9 39 

1,12 4 

1,326 

1, 54 0 

1, 64 s 

1,677 

1,696 

$1,08S 
~---------- ----~----------------------~-------------------------

-7-

Looking at Table 4 we can see how reported ASC interest was 

distributed across income classes. Also shown is the distribution of income (adjusted gross income) and tax liability (tax 

after credit). The major share of ASC interest was reported by 

taxpayers with AGI between $15,000 and $50,000. As the second 

column in the table shows, this is where most of the income is, 

as well. Comparing the two columns, we see that taxpayers with 

income between $30,000 and $200,000 had a larger share of ASC 

interest than they did of income. For both lower income 

taxpayers (under $30,000) and higher income taxpayers (over 

$200,000), the share of ASC interest was smaller than the share 

of AGI. 

Comparing the distribution of ASC interest and tax liability, 

we get a somewhat different picture. Taxpayers with incomes 

below $100,000 had a larger share of ASC interest than they did 

of tax 1 iabi 1 i ty. Conversely, taxpayers i th income over 

$100,000 accounted for more tax liability tnan they did ASC 

interest. 

Because the amount of ASC interest that was tax-deductible 

had a ceiling, we can infer from statistics on amount issued and 

interest rates just what the minimum number of investors must 

have been. For example, in the first month of issue, october 

1981, $31.086 billion of ASCs were purchased. The yield for the 

first week was 12.61%, wh;le for the remainder of the month it 

was 12.14%. Thus, during the first week, it would have taken an 

investment of $7,930 (= $1,000/ .1261) to earn the maximum amount 

of tax exempt interest. 

If we assume that three-quarters of the first month's issues 

were purchased at the opening, and the remaining during the rest 

of the month, then a minimum of 3.9 million purchasersl/ must 

1/ Note that a "purchaser" may be either an individual or "half" 

of a joint return in which each person purchases the limit. 
-8-

Table 4 

Distribution of All-~avers Interest Reported on Tax Returns 

(Preliminary Statistics) , 

: . . Aafustea 

ASC : Gross Tax 

Interest . . Income : Liability 

AGI : (Share of . • (Share of (Share of 

(thousands) : A 11 Returns) . . All Returns) All Returns) 

Under . 10 4.9% 7.9% .0. 8% 

10 - 15 5.1 9.4 2.9 

15 - 30 23. 2 32.4 22.1 

30 - 50 3 5. 7 2 9. 2 3 3.1 

50 - 100 24.0 13. 2 21.2 

100 - 200 5.3 4.0 9.0 

200 - 500 1.5 2.2 5.8 

500 - 1 mill ion • 2 .7 2.1 

Over 1 million .1 1.0 3.1 

All 100.0 100.0 100.0 

Office - of the Secretary of the Treasury February 16;1984--

Of f ice of Ta X Analysis 
• 

-9-

have acquired ASC's during that month. Analagous calculations, 

employing statistics on ASCs issued and prevailing interest 

rates, indicate that at least 6.3 million people must have 

invested in ASC's during the life of the program. Note 

that this assumes everyone invested up to the maximum; to the 

extent that some investors purchased less than the maximum, more 

investors must have acquired ASCs. Thus our 6.3 million estimate 

of investors is a minimum. 

Did These Dollars Represent "New" Savings? 

In summary, a large n~ber of investors purchased ASCs, and 

they devoted some $55 billion to this purpose. Do these figures 

mean that the ASC program was successful in its stated purpose 

of stimulating additional savings or did it merely direct savings 

from other assets? This sort of question is always extremely 

difficult to answer on the basis of historical statistics. The 

difficulty is that we do not have a "controlled experiment" and 

therefore cannot be certain what "would have happened if". For 

example, if savings had increased when ASCs were introduced that 

could not be taken as proof that ASCs caused the increase--it is 

always possible that savings would have increased even more in 

their absence. Conversely, a decline in savings at the time ASCs 

were introduced would not disprove the effectiveness of ASCs in 

stimulating savings--in the absences of ASCs savings might have 

declined even more. Thus, economic analysis can at best provide 

us with only indirect evidence. HOwever, certain time series 

can serve to place ASCs in perspective and indicate the likely 

magnitude of their impact. 

Table 5 shows savings by the "household sector" in different 

forms for the period 1978 first quarter through 1982 fourth 

quarter.~/ The first column shows the estimated change in ASC's 

2/ In the Flow of Funds accounts, households, personal 

trusts, and nonprofit organizations are combined. 
1 .. . . 

-10-

Table 5 

Household Sector Savings Flows 

(Seasonally Adjusted at Annual Rates) 

(Billions of Dollars) 

--------------------------------------------------------------- . . Total 

Personal 

All . 9nall . Money . Net . . . . . Saving 

Sav'!!rs . . Ti~tte and Large Market Saving (National 

Certifi- . . Savings Time Fund Flow of Incane 

cates(est) . Deposits . . . Deposits . . Shares : Funds : Accounts) 

1978 - 1 64.1 3 3. 3 6.9 1615.3 94.3 

2 66.8 47.5 5.4 174.5 83.6 

3 78.1 33.2 5.8 177.2 89.5 

4 46.6 31.7 9.6 180.7 90.0 

1979 - 1 74.3 8.6 28.8 174.2 98.0 

2 69.0 -2.3 31.6 184.9 10 2. l3 

3 64.5 4 5. 4 33.1 177.8 98.6 

4 38.6 15. 9 44.1 161.2 87.3 

1980 - 1 51.8 4 o. 5 61.2 18 3. 8 100.8 

2 100.1 -18.7 62.5 178.3 113.2 

3 99.1 2 4. 9 5.1 176.1 112.2 

4 82.5 12 2. 0 -11.9 181.9 114 .15 

1981 - 1 28.2 -7.3 14 8. 4 18 9. 6 112.2 

2 31.7 60. 8 59.9 206.'3 12 o. 2 

3 58.1 30.8 137.3 24 5. 5 14 9. 7 

4* 43.7 70.3 -7.6 84.'3 . 233.4 159.0 

1982 - 1 5.8 102.1 11.2 38.2 215.4 13 o. 8 

2 6.1 86.8 11.1 40.5 214. 2 127.1 

3 2.4 127.6 -4 o. 6 88.1 200.5 12 3. 0 

4 -34.3 225.2 -41.9 -68.1 210. l3 12 o. 8 

fice of the Secretary of the .Treasury .January 23~ 1984 

Office of Tax Analysis 

i rst quarter for All Savers Certificates 

urce: Federal Reserve Board, Flow of Funds 
-11-

outstanding. As noted above, the program started with a bang in 

the fourth quarter of 1981, but rapidly diminished thereafter. 

The 2nd colunn gives the quantity of "small time and savings 

deposits" by quarter. (This is the category in which All savers 

Certificates are included in the Flow of Funds Accounts.) This 

fluctuates fairly widely, from a low of $28 billion in the first 

quarter of 1981 to a high of $249 billion in the fourth quarter 

of 1982. The biggest single quarter for issuing ASCs was the 

fourth quarter of 1981 when $43.7 billion were issued. It can 

be seen that there was an increase in small time and savings 

accounts that quarter. However, that increase was smaller than 

the one that had occurred between the 2nd and 3rd quarters. 

Furthermore, there was an even larger increase in small time 

deposits between the fourth and first quarters, when new ASC 

issues dropped from $43.7 billion to under $6 billion. 

There also was a sharp dro_p-off in large time deposit savings 

between the 3rd and 4th quarters of 1981, from plus $31 billion 

to minus $8 billion. 

The fourth column of Table 5 shows another investment 

series which casts doubt on the net impact of ASCs. Money market 

funds had been growing at an extremely rapid rate during 1981, 

but this rate of growth slackened dramatically in the 4th 

quarter, dropping from net investment of $137 billion to $84 

billion, although even this latter figure was almost twice the 

investment of ASCs. This decline in growth of some $53 billion 

undoubtedly provided some of the $44 billion which went into 

ASCs. 

Thus, ASCs do not seem to have played a large role in 

household financial investment in 1981 fourth quarter, and there 

is no evidence that they represented any net increase in such 

saving then. 
-12-

The fifth column in Table 5 shows total net savings flows for 

the household and nonprofit sector in the Flow of Funds Accounts. 

We can see that this measure of saving actually peaked out in the 

third quarter of 1981 and started declining in the fourth, just 

as ASCs were introduced. Finally, the last column shows personal 

saving on a National Income Accounts definition. This differs 

from the Plow of Funds definition in two respects: 1) claims 

by individuals against insurance and pension trust funds of 

governments (both Federal, State and local) are considered 

savings in Plow of Funds and not in National Income Accounts. 

2) net expenditures on durable goods are considered to be consumption in the National Income Accounts, but savings in the Plow 

of Fund accounts. This somewhat more restricted concept of 

savings does show a rise in the fourth quarter of 1981, although 

the rise was smaller than had occurred in the third quarter. 

While ASCs may have played a part in this savings increase, two 

other factors also came into play in that quarter. The Economic 

Recovery Tax Act (ERTA) became effective at the beginning of the 

fourth quarter, causing personal tax pa~ents in the national 

income accounts to decline from the third to the fourth quarter. 

In addition, there was a severe slump in automobile sales during 

that quarter, and because of the different way durable purchases 

are handled in the Accounts, this decline in auto sales is 

reflected as higher savings in the last column of Table 5 (NIA) 

but was a major factor in the decline in savings in the next to 

last column (Plow of Funds Basis). 

Can these statistics tell us where the money for All Savers 

Certificates came from? We cannot be certain, of course, because 

there were many other factors operating, but Table 5 certainly 

provides no evidence of any increase in personal savings which 

might be attributed to ASCs. The increase in small time and 

savings deposits in 1981 fourth quarter was more than offset by 

both the decline in large time deposits and the decline in new 

investment in money market fund shares. 
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Finally, we might note that the period of liquidation of 

ASCs, the fourth quarter of 1982, coincides with the largest 

increase in small time and savings deposits in years. 

Table 5 shows the large magnitudes involved in private 

financial assets. However popular All Savers Certificates may 

have been with those who purchased them, they accounted for only 

a tiny fraction of aggregate household savings and did not even 

cause a ripple in aggregate time series.