Banking: Scramble for Savers

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It is getting harder these days to tell a pin-striped banker from a shirt-sleeved discount-house salesman. With big bold ads, U.S. bankers who used to talk in dignified whispers are filling newspapers and airwaves with offers of higher interest rates on personal savings accounts. They are out to take business away from the faster-growing savings and loan associations, whose deposits since 1950 have swollen 500% (to $71 billion) while deposits in commercial banks have increased 200% (to $76 billion).

Postwar Baby. Until the postwar housing boom brought a huge demand for mortgage money, savings and loan associations were little threat to the better-established and broader-based banks. Then, in home-building boom areas, such as Southern California and Florida, and around Denver and Minneapolis, the savings and loan associations pulled in deposits from all over the country by offering interest rates up to 4½% from the day of deposit, v. the banks' basic rate of 3%. Commercial bankers could not compete effectively, because their interest rates are pegged by Federal Reserve Board fiat, while S. and L. rates are unregulated.*

But late last year the Fed sped to the aid of the bankers. In a move aimed mainly at stemming the tide of "hot money" flowing into higher-interest havens overseas, the Fed declared that after Jan. 1, banks could raise savings rates from 3% to 3.5% and even pay 4% on funds deposited for a year or more.

Most bankers quickly lifted rates to the maximum, trumpeting the boost in hard-selling ads that only in the small print indicated that 4% was not being paid from the day of deposit. By narrowing the differential in interest rates, the banks could make better competitive use of their advantages over the savings and loan associations. Unlike the S. and L.s, the banks are financial department stores that offer checking accounts, Christmas clubs and personal loans. In addition, the banks enjoy a popular image of greater strength and solidity—although deposits in S. and L.s are also federally insured (through the Federal Savings & Loan Insurance Corp.).

Gadgets & Giveaways. As the ad war grew noisier, new deposits in S. and L.s during January's first 15 days ran 53% behind the same period last year, while bank deposits in some areas were doubling. The S. and L.s began to fight back. In California, S. and L.s hiked interest rates to 4.6%. But. hemmed in by the stern disciplines of a mortgage market that brings them only 6% on their housing loans, they could scarcely afford to continue to boost interest, turned instead to gimmicky devices. Some associations have stepped up their tactics of offering clocks and crockery, blankets and bathroom scales to new depositors.