The Washington herald., 1912-06-08
WHEN THE BANK CUTS
DOWN YOUR INTEREST

these names are duplicated. because no
one bank will take more than 5000 OIL
any one persons money on deposit
one OF the big and interesting ques-
tons Of the day lies in the fact that
during the period when cost Of living |
has been going up steadily and when |
the rate of interest has bean rising
throughout the world, the savings banks
OF the country have found Il more ana
more dificult to maintain 4 per cent
rate on their deposits. Before lsO5 al
most all these savings banks paid per
cent to their depOsitors. Since that time
eighteen out of thirty-one Of the banks
in New York County have reduced their
rates from 4 to 81 per cent This ten
dency Is stin going on and undoubtedly
others Of the banks will reduce their
rates in the course Of time.
Thousands OF people who have deposits
in savings banks In New York, Massa-
chusetts, Connecticut, Pennsylvania'
New Jersey. are figuring on probable
reduction OF the rate. Most OF them
have made up their minds that II the
rate Is reduced to 81 or to , per cent
as the case may be, they will do some
thing else with their money. Some OF
them have made up their minds what to
do, while others are simply thinking
about II and waiting for the cut In the
rate.
As a matter Of fact, experience
teaches that the reduction OF the rate
will not. in all probability, lead to any
great reduction in the amount Of de-
posits. IL the eighteen banks in New
York County which have reduced their
rates from 4 to 3l4 per cent, the actual
amount OF deposits this year is about
S47i, ,OOO. COO against about $45l.OOO,OO0 three
years ago when the rate was higher.
This means thai a great majority or
people who have mbney in the savings
banks will simply stand the decrease OF
interest and do nothing at all about H.
putting up with the lower rate rather
than run any danger by deserting the
savings banks and embarking upon the
enterprise of making their own invest
ments.
In the first week OF July a great many
thousand people in these States will
probably learn that the rate OF interest
on their deposits has been reduced. Per-
hapS a quarter Of these people will hg-
ure upon making investments as sub
stitute for the savings bank account.
This article is simply a comment upon
the position in which these people will
find themselves and a suggestion as TO
the best course OF conduct TO pursue. II
such a reduction takes place, or II the
reduction has already taken place in
the interest on a savings bank account.
co that II is earning 81 per cent or less
The SEeat bulk Of the depOsitors Of
the savings institutions consist Of very
small investors, people who have put
away from so to $500. To these peo-
pie the savings bank fund is an an
chOr TO windward. so 10 speak, and it
should never be invested in securities,
or tied up in any form Of investment
where II could not be reached imme-
diately in form Of cash II II were needed.
This class OF depositOrs, very much the
most numerous OF the savings bank
class, must meet any reduction in the
rates and suffer II without being tempt
ed to withdraw their funds to go into
other fields.
The saver Of money who has from 500
to $3.50 in the bank might well con-
template, II the rate Is 3iz per cent or
less. investing all but whatever part Of
the fund ought to remain in cash for
emergency. but he ought to make his in
vestment very conservative indeed A
very good criterion, which is used by
a good many people Withdrawing their
money from the savings bank for invest
ment, is to buy with the money only
such securities as the bank itself is al
lowed by law to buy. Any honest banker
or broker can tell a man what the saw
ings banks of his State are allowed to
buy. Such an investment would yield
4l-4 to ~ per cent, with almost perfect
safety. and at the same time would be
marketable in case Of need.
Depositors who have larger amounts in
the savings banks and who regard the
banks not as simply a place TO save
money. but as investment institutions
will probably hnd, II they care to take
the trouble to do So that they can get
from ~ to 81 per cent with a very large
degree OF safety. 1t IS not a sensible
thing to hold large amounts of idle cap
ital lying in the savings banks at 81 or
I per cent, unless there is some particu-
lar reason why this money should be in
cash at a moments notice. Idle invest
ment capital in these days should yield
the investor as a minimum ~ per cent.
There is a man in New York City,
connected with one OF the great retail
stores. who bOasted recently that he had
in the savings banks OF New York as
much money as these banks would take.
II his boast Is literally true, he has in
New York County alone about $4,000 in
the savings banks at an average Of
from this investment, II Il can be called
an investment, is about $3.50.
His only excuse for using the savings
banks as a means of investment, is that
he has no time to study any other form
Of investment and that he is afraid to
venture into personal Investments, be-
cause OF lack of knowledge.
lie is an extreme Illustration of a
habit and Of use Of the savings banks
for which they were never intended
These banks are, as a matter OF fact
designed not to be a method for the in
vestment of large sums Of money, but to
lie an absolutely safe and solid institu-
tion in which man can save up his cap
ital until II Is large enough to invest
in a sensible and substantial way. There
fore, IL one recommend that man with
draw idle capital from savings banks
to make substantial investments, he is
not, in any sense, criticising savings
banks, but .s simply suggesting that
they be put to their proper use rather
than used for a purpose for which they
were never intended. The interest rate
in the savings banks is not supposed to
be high enough to attract investment
funds, nor do the savings banks, in any
sense compete with investment securi-
ties Of investment houses OF a better
grade.