The Non-Check Check

They look like checks and work like checks. They cannot be called checks because mutual savings banks in New York, as in ten other states, are not allowed to offer checking accounts. Still, seven New York savings banks are now advertising "payment orders" in a new effort to woo customers away from commercial banks. One of the lures: it is possible to vise a payment-order account in such a way as to earn interest on funds that are eventually needed to pay bills.

The plan works this way: a customer opens a special account at a savings bank with, say, a minimum deposit of $100 and gets a book of payment orders. When he wants to pay a bill, he simply writes out an order as he would a check. Only narrow technicalities distinguish these accounts from checking accounts. One of them: savings banks cannot offer overdraft privileges on payment accounts.

The accounts as such pay no interest; that is forbidden by federal law. But a customer can easily open both a savings account and a payment account, and deposit all but the minimum in the savings account. He can then go to the bank and switch funds into the payment account to cover the non-checks as he writes them, and earn interest on the money until the day of withdrawal. He could do the same thing at a commercial bank, but there he would get at most 5% interest on regular passbook savings. At a savings bank he can get 5 1/4%.

Furious Bankers. Many commercial bankers are furious. The savings-bank payment order, says Rex J. Morthland, president of the American Bankers Association, "is a blatant violation of the spirit and the letter of the historic distinction between savings and checking accounts." The ABA last week asked the Federal Deposit Insurance Corp. to let commercial banks also pay 5 1/4% interest on savings.

Meanwhile, commercial banks face new checking competition from another source: Boston's Fidelity Group of Mutual Funds last week announced a plan that enables customers to write checks against interest-earning mutual fund accounts. Fidelity is starting a Daily Income Trust that will invest deposits of $5,000 or more in such high-interest securities as Treasury bills and bank certificates of deposit. Each investor who wants the service can also open a no-balance checking account at Boston's National Shawmut Bank. When the bank gets a check for payment, it will withdraw the funds from the customer's Income Trust account, but until then the money earns interest. Although checks can be written only for $1,000 or more, William Byrnes, vice president of Fidelity Group, says expansively that this type of plan could pull "billions" out of the commercial banking system.

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