The Washington times., 1926-02-04
SMALL MARGIN
FOR BANKS
By RICHARD HATTON

a question OF increasing impor-
lance In banking circles is that
OF the payment OF interest upon
checking deposits. 1t has been o.
fixed habit Of many years standing
to allow q depositor q certain
amount of interest, depending upon
several equations.
tThe policy. Of course, is sound.
1t is presumed that it brings BUSH
ness to the bank as 1t is q benefit
to the deposition
The question Is now brought for
ward in some quarters as TO
whether or not the practice Is IT
much benefit to either the bank
or the depositor. q
The average bank deposition in
washington earns something IKE
SO cents q month, or six dollars
year. In interest on checking pc
posts. This amount, Of course, Is
practically negligible. Averaging
bank deposits in Washington, we
find that they are about $7,000,O0V
per institution or about $4,000 depesi-
tors Per bank. This is merely an
arbitrary division of the total num-
her of depositors between the total
u1imber OF banks and does not IN
dictate the number OF depositors IN
any one institution. On this basis
Il may be estimated that the inter
est paid to depositors annually on
these accounts would amount 20
about $3.50, 900 per year, on the
average.
$4,000 In Interest
Taking an an example typical
hank. with. say $1,000. GOO and
10000 depositors, about $1z0,OOO In
interest would be paid by the IN
stitution upon deposits. TINS -
.larTe sum and Il must be earned
~ fhe bank over and above all
ofher exnenses. The point to be
Considered. however, is not so much
what the hank pays In this m
stance az what the depositor gets.
gureading this great amount over
90 number Of depositors the iHdi-
vsll,1al depositor would receive as
HIS share about so cents per month
--harlly worth considering.
on fhe other hand. the point -
Eynssnl,t forward that this sum OF
money. K not paid out in dribbhng
and practically valueless interest,"
amounts. could be used by the
hank 20 increase Its service ana
general efficiency. Its value 70 the
customer would Be enhanced II 1ar
greater proportion than the smaH
amount that would not then oe
credited TO the checking account
deponftor
1.ear1,lr mon any discussion Of In
feresf paid unon deposits, and this
A. merely 4 discussion and not an
advocacy OF either side OF the ques-
ton. a that Of the cost TO the
rank OF handling checking ac-
counts. For example, the average
depositor win draw not less than
Ten checks month &C g cost toi
fl,e bank upon which they are
drawn. according to en- analysis
MADE By the committee on un-
Drofffabie accounts Of the District
Of Columbia Bankers Association,
of about $7.2o per year.
Cost 70 Bank
II t1,a So paid IN interest on the
average account IN one year be
added 70 the $40 cost Of handling
the checking account, the bank viii
find that 4 has spent for the
privilege of carrying tais~ average
account about - Per cent OF the
average balance
The following figures may appear
somewhat complicated at frs
glance, but they are perfectly clear
and the problem created IL one
which any thoughtful individual
win Immediately grasp.
n bank q only able to use about
50 per cent Of the average deposits
carried on its books. II this 80 per
cent IL successfully loaned at, say.
s per cent, the only means at hand
by which the bank can profit by
the deposit the banks gross profit
would be $14.4e per year on the
average account. But the gross
profit Is not what counts in fig
airing the state Of business. It is
me net profit and, according to
the figures as set forth above, q
bank, If it is lucky, win earn some
thing In the neighborhood of s1.20
in one year on the average account
OF this nature carried.