Savings Banks

As we have seen, banks belong to three main groups - commercial, savings and trust. It would be more exact to say that there are in general three kinds of banking, because one bank may, and often does, transact these different kinds of business under one roof. National banks are essentially commercial banks, yet many of them conduct savings departments, and the Federal Reserve Act permits them to act as trustee, executor, registrar, etc. - trust company functions - when not in contravention of state laws. State commercial banks are like national banks in these respects. Deposits in commercial banks may be made up largely of loans, or, putting it differently, there are deposits of credit as well as deposits of money. In the sense that deposits of cash are deposits of money that has been "saved," all banks may be said to be institutions for the receipt and safeguarding of savings. This use of the word savings is, therefore, quite common in bank names, although a bank using the word in its title may in reality be a commercial bank. In the State of Iowa the law provides for the organization of two kinds of banks, "state" banks and "savings" banks, and the designation, savings, is required by the code. Inasmuch as there are certain advantages to be derived in organizing under the savings part of the code, we find many savings banks, so called, in Iowa which are in point of fact ordinary commercial banks. The attention of the student is directed to this point because of the confusion that exists on account of the variation in the use of terms in different states. Thus in Massachusetts reference to a bank directory will disclose but three kinds of bank titles - national banks, savings banks and trust companies. These last are virtually commercial state banks with the privilege of doing "trust" business if they so desire.

Savings banks in the strict meaning of the term are banks organized to receive the savings of depositors, to invest them in loans and securities of the very safest kind, and to pay the depositors a fair rate of interest. The relation between the savings bank and its customers is of a close and confidential nature. The depositors are for the most part of the poorer classes, the working people and the thrifty of all sexes and ages who seldom accumulate enough money to invest it for themselves even if possessed of sufficient business judgment to warrant their doing so. We find that both the laws of the state and the rules of savings banks throw every possible safeguard around the savings bank depositor. In many states not only are savings banks restricted as to the kind of investments they may make, but the law even goes so far as to designate a list of specific securities which are classed as "legal investments for savings banks and trust funds." The two most common forms of investments for savings banks are mortgages upon real estate, preferably homes, and bonds. Among the latter railroad and municipal or civic bonds are given the preference, since the margin of safety is greater. Such investments are possible since savings deposits are of a permanent nature. The savings bank is the depository for money laid by for a "rainy day," old age, sickness and similar needs. Parents open accounts for their children, partly to teach them the habit of thrift, partly to defray the expenses of education. The young married couple will deposit the funds resulting from little household economies that they may build themselves a home, and there are thousands of savings accounts the owners of which may have no other definite purpose in mind except the instinct to save, which is natural to the normal human being, a habit that man has in common with other creatures of the earth.

There are two kinds of savings banks in the United States, the stock savings bank and the mutual savings bank. The stock savings bank, as the term implies, has capital stock and is organized for profit. The mutual savings bank, found almost exclusively in the section east of Ohio and north of Virginia, has no capital stock, the profits belonging to the depositors and being paid to them as interest upon balances. The stock savings bank has a board of directors and the affairs of the institution are managed very much along the lines of the average commercial bank. The mutual savings banks are managed by a board of trustees, which is a self-perpetuating body chosen for their integrity and standing in the community. Of the two, the mutual banks are by far the largest, there being at least four with deposits of over one hundred millions of dollars. The report of the Comptroller of the Currency for 1913 showed total deposits in mutual savings banks to be over four billions of dollars, while the deposits in stock savings banks were less than one billion. The postal savings bank system, conducted by the postoffice department, is a concession to those who for one reason or another do not trust banks. Money that would otherwise be hoarded is put into productive channels through the operations of the postal savings system.

Savings bank accounting differs from other bank accounting only to the extent that the business is conducted with a different class of depositors, whose needs are not the same as the needs of the business man and merchant. Savings accounts, being comparatively inactive and small as compared with commercial accounts, are usually recorded upon ledgers and other records by number. Savings bank balances are not subject to check as a rule, nor could they very well be since the investments of the bank are not sufficiently liquid to permit withdrawal without due notice. Some banks have a fixed rule requiring two weeks' notice before money may be withdrawn; others pay upon the presentation of the pass-book, but practically all of them reserve the right to take advantage of the law, when necessary, which permits a savings bank to demand sixty days' notice of the withdrawal of funds. The pass-book used by a savings bank is used as a voucher or a receipt, both for money deposited and money withdrawn. It is also evidence of the contract between the bank and the depositor. The pass-book must always be presented when money is withdrawn, the depositor being required to identify himself not only by possession of the book, but by his signature and his ability to answer test questions, for example, his mother's maiden name. The bank is not required by law to be familiar with the signature except that it is a means of identification. Many of the depositors may be illiterate or they may be children whose handwriting undergoes rapid changes, consequently many savings banks use the fingerprint method of identification. These precautions are necessary to prevent money being paid out to imposters who may have gotten illegal possession of a pass-book. In order to prevent depositors from using the bank as a temporary depository for idle funds there is usually a limit placed upon the amount anyone may deposit in a single year, and balances over a certain amount, $3,000.00 for example, do not draw interest.