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.