Not all savings banks are conducted on the same basis. In New York and
a few other states the only institutions which are permitted by law to
call themselves “savings” banks are the _mutual_ savings banks.
There are more than six hundred of these, most of them being in the
eastern states. They operate under very strict laws. Only the safest
investments are legal for them.
Their funds must be put into such securities as United States bonds,
city and state bonds, high grade first mortgages--investments in which
there is practically no risk.
There are no stockholders--the depositors really own the bank. They
receive the profits in the form of interest on their deposits. The bank
is managed by trustees who receive no salaries. The profits are never
spectacularly great because the investments must be “gilt-edged,” and
such investments do not yield big returns. So the depositors in these
banks usually get from four to four and one-half percent on their money.
However, this money is probably in as safe a place as could be found
anywhere. There have been no failures of mutual savings banks in recent
years.
Other savings banks are not subject to the same legal requirements,
and the depositors are not the owners of the banks. Moreover, what you
regard as a “savings bank” may be a savings department of a regular
commercial bank. Many of these banks are as solid as the Rock of
Gibraltar. Some of them may not be. It depends on the integrity and
ability of the management.
It is best to make inquiries about a bank before you deposit in it.
Find out something about the men who control it. Read its reports and
financial statements. Write to the state bank examiner, and so long
as your money is in a bank, try to keep informed as to the bank’s
condition.
Some savings banks are extremely modern and alert to stimulate savings.
One such mutual institution flourishes in New York City, and has a
large list of members or owners among the working people of the city.
It has three principal methods of savings, called: (first) saving
shares, and (second) installment shares, and (third) income shares.
Saving Shares.--The plan of saving shares appeals to those who are
unwilling to be bound by any particular plan of saving, and prefer to
save as the impulse and the occasion arise. This plan, while similar to
the usual savings plan, has the advantage of what is sometimes called
the “Shareholder Agreement of Guaranty”--paying annual dividends of
4½%, credited quarterly or semi-annually and compounded if allowed to
remain on deposit. By this plan amounts ranging from $1.00 to $5,000
may be deposited with the bank.
Withdrawing of either the whole or any part of the amount on deposit,
together with all accrued dividends, may be made without notice during
usual circumstances, though the banking law specifies that sixty days
notice may be required in unusual cases.
Dividend earnings begin the first of the month following date of
deposit, and no time is lost awaiting a dividend period. During the
months of January and July deposits received before the tenth draw
interest from the first of the month.
Installment Shares.--To those who prefer a definite plan of saving and
are in a position to follow through systematic deposits of a definite
amount the banks offer a plan ranging upward from the payment of $1
monthly, applying on the $100 shares. On ten shares--$1,000--he would
make regular payments of $10 monthly until the completion of the
required payments, together with compounded interest, equaling the
maturity value of the share for which he has obligated himself to pay.
There are many variations of this plan, taking into consideration the
amount of shares the depositor wishes to buy and the period of time
in which he wishes to pay for them. This type of investment pays 6%
annually and is credited and compounded quarterly or semi-annually.
These installment savings pay a higher rate of interest, in most cases
amounting to 1½% more than the usual interest rate paid on savings
deposited in the ordinary way. On the plan of $1 payable monthly, as
applied to ten $100 shares, with compounded interest dividends, the
shares reach maturity in about seven years. However, by occasional
advances in payments the depositor can, of course, expedite maturity in
less than six years.
Should the shareholder desire to withdraw his savings before maturity
he may withdraw the entire amount, together with 90% of the accrued
earnings.
On the monthly purchase plan of ten shares, if withdrawal is made prior
to maturity the following interest dividends are paid: 4% per annum
semi-annually compounded, if withdrawn within three years; 5% per annum
semi-annually compounded, if withdrawn after three years and prior to
five years; 6% per annum simple interest, if withdrawn after five years
and prior to maturity.
By this plan of saving the systematic depositor who follows a definite
course of saving profits to a much greater degree than the person whose
deposits are spasmodic and who in that way secures only the usual
interest rates.
If the depositor is in arrears in his monthly payments on or before the
fifth day of each month, his deposit doesn’t begin to earn interest
until the first of the month following payment. It is advisable for
shareholders to make payment of their installment on the first of each
month thus obviating the hazards of delays in mail and also give the
bank clerks sufficient time to make entries on the books prior to the
fifth of the month.
Should the shareholder be confronted with the need to raise cash, he
may borrow from the bank on his shares at the regular interest rate
by putting up his shares as collateral security. He may borrow up to
ninety percent of the amount of the shares subscribed for.
On the installment plan of payment for shares, when $100, the maturity
value, is reached, the shares are automatically retired at full value,
and disposition may be made either by transfer to his savings share
account or exchanged for income shares, whichever the owner prefers.
The installment saving share plan is open to any person of legal age,
or to any group of persons of legal age who wish to combine their
savings and purchase shares by this plan. In the case of minors,
application may be made by any person of legal age, as trustee for the
minor, or as trustee for another person not making personal application.
To the investor who prefers the returns from his investment payable
in cash periodically, banks offer a class of Guaranteed Income
Share Certificates. These certificates are issued in $100 or larger
denominations and by the guaranty plan are guaranteed as to both
principal and dividends, at the rate of 5½% annually. Interest
dividends accrue from the date the certificates are issued and payments
in cash are due on January and July 1st. The income shares under
this class may be withdrawn as the holder desires, three years after
issuance, upon sixty days’ written notice (though some banks do not
insist upon this formality.) In times of unusual business conditions
other legal provisos regulating the withdrawal of deposits are
sometimes imposed.
Those of a “gambling” turn of mind will not find Income Shares
particularly appealing, as this type of investment appeals to the
conservative investor who, first of all, wants a safe and definite
income-producing investment. These shares are not given a listing on
stock exchanges, as this type of security is bought with a view to
holding for income, and not to be placed on the market for sale. This
explains why there is no dealing in this type of securities, such as
the listed stocks and bonds, and, consequently, no quick market for
their sale. To offset this seeming disadvantage, the investor would
do well to consider that they have a fixed value and are not subject
to fluctuations suffered by listed securities on the daily market.
What advantage is a quick sale, when the holder of the security has to
sell at the bidder’s price? While, it is true, the non-speculative,
conservative investor cannot expect to make unusually large gains
in his principal, on the other hand, the advantages offered by the
certainty that the principal and income will be collected in full at
maturity greatly offset the allurements of speculative investments.